[fragmede]

The references to Atlas Shrugged and the trains not running on time, and the bit about healthcare costs do not bolster any argument against a tax on unrealized gains, so this comes off more as ideologically motivated bit, rather than than an argument against the specific tax. Taxing unrealized gains is really problematic, as anyone in the startup scene who's been granted stock options in a rising startup in Silicon Valley can attest to. Paying a million dollars to the IRS because of AMT means you got a big payday, except for the fact that if you don't actually have a million dollars, you then have a problem. Most people don't have a million dollars to begin with so you can't pay that bill and you take a loan from sketchy loan shark, whole repeating the mantra, 100% of $0 is $0. 70% of a big number is still a big number.

Looking at the US, rasing taxes on the rich and doing more against unrealized gains won't happen for at least four years, so we don't have to worry about that, at least.

[no_wizard]

Taxing unrealized gains in a blanket way is bad but a more targeted threshold, such as taxing them when used in loan arrangements in which someone borrows against their holdings to avoid paying taxes on realizing the gains, seems like it would achieve the spirit of such a tax

[Aloisius]

Taxing people for going into debt certainly an... interesting idea.

[no_wizard]

That’s not it. That’s too general.

Applying a tax when the financial purpose of the loan is solely to avoid paying any taxes on realizing the gains is what I’m talking about. This is demonstrably a vehicle of tax avoidance used by wealthy individuals to avoid taxes on what they would otherwise have to because they would have to sell the asset otherwise

[Aloisius]

I've tried to get people to explain to me how this works and I have yet to hear a answer that doesn't end with, paying far more in interest than one would have paid in long-term capital gains or needing to die a few years after the loans to prevent that - or having to sell stock in order to make payments thus paying not only interest, but also capital gains tax.

These are variable rate short-term loans. Even the best, in the US, is WSJ prime rate - 0.75 points - that would be 7.25% right now.

Maybe when interest rates were near 0, you could have stretched it for a while, but it still sounds like little more than living off credit cards.

[no_wizard]

So called Buy Borrow Die strategies are one way[0][1]. Another (and this is what I’m referring to) is leveraging SBLOC[2][3], USLOC, HELOC and alternative asset type loans to borrow against their assets without tax consequences. These loans are made at below market rates of interest more often than not as well. They’re not paying 7.25% on these loans. Yes, banks are willing to take a potential loss on these loans to service the broader financial need of these clients. Particularly if they bring their corporate or investment vehicle business with them.

In the most simplified version of any of this though it either allows you to do the following

- delay paying taxes until you can’t snowball loans any longer. Then you transfer (not sell!) the assets to the bank and they sell it to cover the loan

- pay off the loan through the estate after death, which has its own tax implications can be structured in such a way to further avoid or mitigate taxes on these assets

- In the most common cases it allows the delay of sale long enough that you can cover the loan with a sale of other assets, e.g. real estate which have a different tax structure as well on income derived, and cover the loan that way.

Usually these types of loans are used to buy another investment vehicle, like real estate. Then those assets appreciate and are used to payoff the loan or roll into a bigger loan etc.

You really have to be of a certain asset class to do all this

[0]: https://smartasset.com/investing/buy-borrow-die-how-the-rich...

[1]: https://www.wsj.com/articles/buy-borrow-die-how-rich-america...

[2]: https://www.finra.org/investors/insights/securities-backed-l...

[3]: https://www.businessinsider.com/securities-asset-backed-loan...

[Aloisius]

> They’re not paying 7.25% on those loan

The rate I gave was for Bancorp's best SBLOC, for loans of over $10 million.

HELOC rates (home equity loan) are anywhere from 7.65-8.6% right now.

It doesn't take many years before you end up paying more in interest than you would have had to pay in capital gains - and of course, you need to pay back SBLOCs every year with interest, so you're having to sell assets - and paying capital gains.

It wouldn't have been quite so bad when interest rates were low and you could get a line of credit for 3%, but those days are long gone.

[vidarh]

Ironically Norway does the opposite - there's quite generous deductions for interest from taxable income in Norway.

[vidarh]

The tax bill for ~$10m is <$90k. You don't need to take a loan from a sketchy loan shark - if you're remotely aware of this issue, you structure your investment agreements to account for lending you the money, and now you're taxed on commercial interest rates for it only, until there's a liquidity event.

This is a problem if you have no clue about the tax system and don't seek advice before your company has already reached a huge size.

I was 19 when I set up my first company in Norway, and had no prior exposure to business - I still knew the wealth tax was a thing to be aware of.