[jppope]

> Wealth accumulates with no input once established.

This is incorrect, historically you'll pay a ~2%-3% loss via inflation if you keep your money in cash. If you invest (making it capital) in bonds or securities then you will see accumulation, but thats actually a risk premium.

> Additionally, wealthy people can use securities as collateral for near zero interest lifetime loans which also bypass having to pay income tax.

This is true, its typically called "Buy, Borrow, Die" but the reality is that it is only available to a very small percent of wealthy individuals and exists because of the way inheritance is handled ("stepped-up basis"). Even reasonably (not fabulously) wealthy people will still pay retail rates on the loans making the tactic basically ineffective. Last I heard you needed something like 100M+ liquid for lenders to even consider it (presumably, because they will make more off of some other deal with you)

[Epa095]

The S&P500 has increased 9.8% annually the last 100 years, roughly 6% annually adjusted for inflation. Yes, past performance is no guarantee for future, but historically a completely passive index placement of wealth into S&P500 would double the real (adjusted for inflation) wealth every 12 years. With absolutely no work.

[__turbobrew__]

Also, if you are wealthy enough you can just wait out any economic downturn. Hell, Im not even that wealthy and it would have to get really bad before I would be forced to sell in a down market.

[xphos]

Yeah but the 5% Paul used is also kind of conservative since the 1970s stock market returns is like 10% ignoringinflation. Its a big difference if your well grows 7% verse 5% a 1% wealth tax with that in mind is only 15% but i think factoring in inflation is unfair concerning labor pays tax after inflation. That brings the rate down to 10% and thats without taking any significant risk.

I think a real solution is a forced step up in bases every year so people cannot put taxes off forever. It can be modest too 5% of your investment value delta. You could make the carried lost yoy track the net so you cannot be forced to pay when things are down.

Also the idea that capital gains tax should be less than income tax rate is strange. Like the people that own large amount of capital are in the lowest risk situations why should they also.have the most generous tax positions it makes no sense. No real person things the business owner who gets large returns is actually worse off or in high risk because if they were they'd be culled by economic evolution

[skybrian]

Step-up basis is important for anyone who inherits property from their parents. That can be substantial in places like California where real estate has gone up a lot.

And for inherited rental property, there is another huge loophole: you can can depreciate the full market value of an asset that you got for free. That’s a substantial tax benefit for many years.

[PokedBear]

The step up basis makes sense in a world where you still have to pay substantial inheritance taxes. But with minimal to no inheritance taxes, the step up is a giveaway.

[sokoloff]

It’s also a practical policy. It’s far easier to know the stepped-up basis on the date of X’s death than it is to know the basis that X had in something once X is dead.

[topaz0]

Which argues in favor of the inheritance tax mentioned.

There could be other solutions too -- say, require a virtual wash trade at time of inheritance, so the capital gains from the parent's lifetime are taxed at time of death and the child gets the stepped up basis. Somewhat different than an inheritance tax, but at least not a giveaway.

[sokoloff]

The full value of the shares (original basis plus step-up [or step-down] in basis) is already part of the estate and so is already subject to the inheritance tax rules.

It's just that the exclusion amounts are fairly high, so in practice the tax owed is often $0.

[topaz0]

Right, the point of the person you replied to was about the scenario where inheritance taxes are small or non-existent - they literally said step up in basis makes sense when inheritance is taxed meaningfully.