[csallen]

> In 2018, Warren Buffett had a net worth of $84 billion. The effective tax rate on his mountain of wealth? 0.006%—orders of magnitude lower than the tax rates paid by most middle-class families.

What tax rate do middle-class families pay on their net worth? 0% I believe, since we don't have wealth taxes?

[iammisc]

Yeah, this is written in extremely manipulative language. What was warren buffett's income in 2018? We have income tax, not wealth tax. Plus, a lot of that wealth is likely 'in' his company, which is really just fake money. I mean, I know accountants look at it and there is some overlap for taxes when doing things like options and share grants and FMV, but really, a company is worth zero until you sell it, like most assets.

EDIT: Repeat after me: net worth increases are not income. Net worth increases are not income. I mean, I "made" $250k last year in home appreciation, but that's just fake money. If they taxed me on it, it would come out of my much smaller take home pay.

This is the big lie. Most of these asset prices are increased due to inflation anyway. In real terms, both the stock market and real estate have been stagnant for decades, but by inflating the currency, they can make people out to have 'increasing net worth' and then tax them.

[Closi]

> a company is worth zero until you sell it, like most assets.

I don’t think that’s quite true - I would say a better definition would be that a company is worth what someone will pay for it, regardless of if you actually sell it or not.

Stocks, piles of gold and cash are just different types of asset all of which have value.

And you have to really tax all of that, otherwise the wealthy will just avoid taxes by being paid in untaxable gold bricks and trade those for purchases rather than dollars.

[leetcrew]

> I would say a better definition would be that a company is worth what someone will pay for it, regardless of if you actually sell it or not.

this is a good definition for someone like me. if I had to liquidate all my assets today, I could easily figure out how much they are worth just by looking at existing bids.

while no less "true", this definition isn't very helpful at scale. warren buffet can't just sell all his berkshire stock by filling orders. depending on the circumstances of the sale, it could either be worth a lot more than n * last price or a lot less.

[basseq]

To clarify, if you were paid in gold, that's still income and you would still be taxed on the fair market value of that gold. It's income that's taxed, not USD.

Same as stock grants: if you're paid in stock, you pay income taxes when that stock is granted, at the market value of that stock.

You aren't taxed on the FMV increase of that stock until you sell it (at which point you're taxed on capital gains).

[bin_bash]

yes but billionaires never sell. They take out loans using their assets as collateral. That way they don't have to report income.

[neosenate]

How are the loans paid back? I could never figure this one out. If they have to sell assets to pay for the loan, don’t they then get taxed at point of sale?

[bin_bash]

They either get terms where they have to make minimal payments if any, and refinance before the due date. Or they take out more loans to make the payments. Eventually they just die and the estate pays it off tax-free.

[mbg721]

That definition works for things like gold bricks or stocks that are purely treated as assets, but it can create some odd outcomes.

In the 90s there were stories of a fan who caught a milestone home-run baseball and because of its sentimental value didn't want to sell it, but had to do so in order to pay the tax bill.

In the extreme case, if I have a child, does that constitute income equal to the price a human-trafficker would be willing to pay for him or her?

[intended]

I mean do we need to sell Apple to know it’s worth money ? The existence of the stock market immediately makes it possible to convert assets into liquidity - something which firms do regularly.

[intended]

I was an IB/PE financial analyst in another life and tax optimization by moving cash flows around is not only a thing, it’s the norm.

Plus if your argument were fair, we wouldn’t be seeing the kind of wealth concentration in the system.

It’s essentially a sign that financial engineering is an un-checked force multiplier which regulation has not kept up with.

Finally - asset appreciation is real, yes interest rates have been low and would typically be inflationary - however we’ve also had multiple massive disasters in a short span of time which have crushed demand and economic activity.

[belltaco]

>Plus, a lot of that wealth is likely 'in' his company, which is really just fake money.

Then maybe we should give the poor some of this "fake money" since it's fake and doesn't matter anyway.

>EDIT: Repeat after me: net worth increases are not income. Net worth increases are not income. I mean, I "made" $250k last year in home appreciation, but that's just fake money. If they taxed me on it, it would come out of my much smaller take home pay.

>This is the big lie. Most of these asset prices are increased due to inflation anyway. In real terms, both the stock market and real estate have been stagnant for decades, but by inflating the currency, they can make people out to have 'increasing net worth' and then tax them.

This is an actual big lie, since you can borrow against assets like this with secured loans. And you can turn it into cash without moving out immediately with reverse mortgages. How are you able to get "free real money" from "fake money"? Maybe it's not as fake as you think.

[iammisc]

We do. Most Americans own homes which means they're sitting on hundreds of thousands in fake money

[dahfizz]

> you can borrow against assets like this with secured loans

Okay, and how do you pay back these loans? That's right: with your income. You're just moving the problem around.

[CyanLite2]

Ultra-Wealthy secured loans don't work like mortgages you and I deal with. On a $1 billion dollar asset, they can borrow like 40% of that, with no monthly payments, just one big balloon payment at the end of the 10+ year term with a little bit of accrued interest. They simply refinance in 10 years, and now the asset is worth $3 billion and then they take out an even bigger loan. Because it's a loan, it's not considered taxable income. And the interest payments on this loan are tax deductible. And usually these assets (like real estate, or stocks) often pay out dividends or rental income. So they can borrow on these assets ad infinitum and use the proceeds to continue to reinvest in more hard assets and to fund their lavish lifestyle. They won't directly own a super-yacht, their company will own it and rent it back to them, with the maintenance expenses considered business expenses since it's a rental business. Same with their vacation houses. Along the way they may pay a modicum of capital gains taxes on the stock dividends, but it's usually offset by the tax-deductible interest on the loan itself. Rinse and repeat for a few decades.

At the end of it all, they have enough dividends/rental income, that's paying for lavish lifestyles, and they still own all of the hard assets that they can then pass down to their heirs with minimal taxable events.

[mrkurt]

No, you die. Your assets get liquidated. The estate pays the loans. No income involved, at least in tax terms.

[monocasa]

Or you take out more loans to cover the interest until you die.

[satronaut]

Everyone gets a free education for 12 years, and access to infinite knowledge (library with books and internet). Qualifying families also have access to dirt cheap internet (at&t offers internet for 10$ a month if you're poor).

Most anybody has the means to research how to set up an amazon store, a blog, or a youtube channel and start making business income. But instead of spending their time learning how to better their life, they waste it on social media, watching tv, etc.

[monocasa]

> set up an amazon store, a blog, or a youtube channel and start making business income.

Those are barely above MLM scams in likelyhood of making money.

You're sort of proving the opposite of your point by giving those as examples to pull yourself out of poverty.

[satronaut]

you can make money if you do your research. You won't make millions over night, but you have to start somewhere. Really though, if people learned how to properly budget their time and money, change their habits, and disassociate from groups that bring them down, they'll have positive changes in their life.

You can lead a horse to water but you can't make it drink though.

[monocasa]

You can technically make money with Herbalife too. Hell, I wouldn't be surprised if a greater proportion of people made money on Herbalife versus a YouTube channel.

[fairity]

> In real terms, both the stock market and real estate have been stagnant for decades

What do you mean by this? Inflation over the past couple decades has come in around 2-3%. The stock market has appreciated by much more.

[iammisc]

Real inflation as measured before the cpi methodology changes in the 90s is likely in the 7-15% range. The government manipulates the basket of goods to 'achieve' low rates.

http://www.shadowstats.com/alternate_data/inflation-charts

In this view, there has been no asset appreciation. It's a myth to quell the masses achieved by manipulating inflation rates.

[sroussey]

Your home has a wealth tax, also known as property tax. These increase as the home appreciates.

[deepsun]

We do have one kind of wealth taxes -- property tax.

They have many problems as well, but that's a wealth tax.

[avalys]

To be fair though, we do have property taxes, and many middle-class families have a substantial fraction of their net worth tied up in their house and other real property.

[aidenn0]

I would even go so far as to say the typical middle-class family has real property in an amount that exceeds their net-worth.

[jeffbee]

Median American net worth is $121k. Median home price is $380k. Typical real property taxes are .5% - 2%. Call it 1% and that makes the typical wealth tax on middle-class people roughly 3% per year.

[onlyrealcuzzo]

>60% of homeowners are in debt on their house, though.

So they are getting appreciation on leverage.

I would argue the median homeowner is being subsidized, having a negative wealth tax.

The local government takes away 1%, but the Federal government pumps up your asset price by >2% - that's a -1% wealth tax (paid entirely through inflation by non-homeowners).

[jeffbee]

Yes, there are many exemptions in tax policy for real estate. We exempt the first $500k of gains from income taxes, for example. And our whole society is structured around "building equity" i.e. making housing cost more.

[alasdair_]

Since most middle-class families have the bulk of their wealth in their primary residence, the effective tax rate is however much they are paying in property taxes divided by the equity in the home. In many cases this can amount to a sizable percentage of net worth.

[mrkurt]

Around 1%, in the form of property taxes. That's a tough number, though, because property taxes apply even when people are under water on their mortgages or rent.

The only wealth taxes the US has are property taxes. We all just think of wealth as the stuff that doesn't get taxed. The richer you get, the less of your wealth is taxable. The poorer you get, the more you pay wealth taxes.

In theory, we tax rich people when they convert their wealth to income. In practice, they all convert their wealth to income by borrowing against it, then dying, then having their estate pay their debts tax free.

[knowledge-clay]

Property taxes are a form of wealth tax

[ramblinrose]

How is this the top comment? It does nothing to move the discourse forward. You are trying to slam the brakes by homing in on some tricky terminology. I wish this kind of comment would get downvoted into oblivion anytime the topic of a wealth tax comes up, whether or not you agree with it.

The difficulty you are having in parsing out the comparison here is because the comparison is difficult to make (and possibly you are just trolling). How would you word this sentence to make it more clear? It is clear from the rest of the document that what is being compared is not the "wealth tax" on families, because as you said we don't have wealth taxes.

The comparison is what percentage of wealth do families already give to the government through taxes in general. Nowhere does it mention an existing "wealth tax". Most middle-class families build their wealth from a paycheck, while ultra-rich families can do so through other means that aren't taxed. Whether or not you agree that a wealth tax would be of benefit here, it's hard to argue against that point. And that is what your referenced quote is trying to elucidate.

[rufus_foreman]

>> Nowhere does it mention an existing "wealth tax"

Well of course not. There isn't one. And the Senate can't pass one because the Constitution (happy birthday) doesn't allow them. Elizabeth Warren knows that a wealth tax is unconstitutional. She swore to support and defend the Constitution. And she is championing a wealth tax.

[nerdjon]

This is something I have always been curious about but really not talked about in any of these studies.

(I am purposefully ignoring the companies not paying taxes since that I think is a valid issue if we are talking about income).

So Warren Buffet may have $84 billion in stocks and assets, but how much did he actually sell? How much money went from selling stocks to his bank account?

I think that number if far more important.

Yes it is true that we have excise taxes on cars and property taxes on homes, I feel like a just plain "wealth" tax is not the right solution.

I don't like the idea that the government can say, "you have X amount in stocks, you must sell a certain perfect so you can pay us in taxes". Which is what this sounds like to me? Or am I majorly missing something here. Taking the Warren Buffet example, he would have to come up with 2.5 billion in taxes

[mrkurt]

You're not really missing anything, but there's a giant loophole.

If you have $84 billion (or even $20 million) in stocks and assets, you can borrow against them without converting them to income. Then you can die. Then your estate pays off the debt without paying income taxes. Thus, 0 income taxes over a lifetime of converting wealth to income.

[satronaut]

but the investments generate tax's. If I invest 1 million dollars to hire 10 people at 100,000 $ each, they all pay income tax's. That income tax wouldn't be collected if it weren't for the investment.

* round nubmers ** you'd pay 150,000 usd on a 1 million dollar investment cashout

federal income tax on a salary of 100,000 USD times 10 is 151,040

So the government still gets their tax's (and more if you countother ancillary tax's) AND 10 people have a job

[mrkurt]

Very few business pay salaries out of investment money. And even when they do, it's temporary. If salaries were paid with investments, the investments wouldn't ever become more valuable.

When you buy stock, you're not paying salaries. You're buying ownership of something that has value, generates income, and mostly intends to use that income to pay salaries.

The argument you're making is an argument against corporate income taxes. That's different.

[commandlinefan]

> you can borrow against them without converting them to income. Then you can die.

But surely you have to make payments on those loans before then... interest payments at least. You're either making those payments with the money you were loaned or from your regular income (that was taxed in the first place). At that point you might as well just pay the capital gains taxes because you're losing the same money to interest payments anyway.

[mrkurt]

Rich people get access to astonishingly favorable loans. And they never have to make interest payments.

> Merrill Lynch recently quoted an interest rate of 3.2% to clients with at least $1 million in assets. Those with $100 million or more can get a rate as low as 0.87%.

These are loss leaders for banks. They want to entice incredibly wealthy people to do business with them and have their companies do business with them.

Wealthfront has a product for the merely rich: https://www.wealthfront.com/portfolio-line-of-credit

> Because your line of credit is secured by your diversified investment portfolio, we can keep the rates low for you. Depending on account size, current rates are 2.40% - 3.65%. Using a line of credit is generally cheaper than carrying a balance on a credit card or taking out a personal loan.

> Borrow up to 30% of your account whenever you need it, for whatever you need. Pay back what you borrow and the interest payment on your own schedule.

[CyanLite2]

The rich invest in hard assets that produce income. Whether that's dividend from stocks, or rental income from commercial buildings. That recurring income is usually enough to service the loan.

And remember the ultra-rich themselves own the bank. Warren Buffet has huge multi-billion dollar positions in Goldman Sachs and Wells Fargo, in addition to owning the real-estate arm of Berkshire Hathaway itself. And the ones that don't own the banks, still get favorable personal treatment from banks in order to get their M&A or underwriting business.

[nerdjon]

I never realized that...

Wouldn't that loophole be the better thing to try to address then?

Instead of just focusing on their wealth, instead focus on the loopholes.

[mrkurt]

There is tremendous resistance to addressing that loophole. A wealth tax is one way to address it. An estate tax is another. So far a "wealth tax" seems more popular, because most people like the idea of a tax free inheritance but don't have untaxed wealth. Most people actually pay wealth taxes already when they buy cars or houses or a boat or an RV.

[d--b]

It should have said: the effective tax rate on the revenue he derived from his mountain of wealth.

[aidenn0]

If Buffet earned an average 1% return across his net assets, then he paid 0.6% tax on his returns.

[temp8964]

Is inflation kind of wealth tax?

[downWidOutaFite]

Depends if you consider property tax to be a wealth tax.