[outside1234]

It isn't, because the ultra rich have no capital gains. They get ultra low interest rate loans against assets so they never have to sell assets and trigger capital gains. Google "Buy, Borrow, Die" if you don't understand this strategy.

[Manuel_D]

They have to sell eventually to pay off the loans. And if they die, their estate has to sell the assets to pay off the loans, and then their heir will pay inheritance taxes on top of that.

Unless their spouse is still alive. In the US, assets' cost bases are reset when a spouse dies. That is the main way that rich people avoid capital gains taxes. I'd much prefer simply stopping that cost basis reset instead of implementing a wealth tax.

[AnthonyMouse]

> I'd much prefer simply stopping that cost basis reset instead of implementing a wealth tax.

Neither of these would really work against the people you actually want it to work against.

If you don't have a basis reset then they just do a transaction that has the same effect, e.g. create a new corporation owned by the recipient and then have it repeatedly enter into slightly favorable transactions with the one owned by the donor until the new one has all the assets, or any of a hundred other things.

If you try to do a wealth tax then their assets end up in another country under whatever arrangement is necessary to give them de facto control but not formal ownership.

The best way to solve the "buy, borrow, die" thing is actually a consumption tax because then borrowing money in order to spend it doesn't avoid the tax.

[SoftTalker]

I'd like to see all taxes replaced by consumption, sales, and/or value-added taxes, with an automatic rebate to offset the regressiveness. It would kind of end up being UBI with a vastly simpler tax code.

[Manuel_D]

This would be an extremely regressive tax regime, effectively a flat tax rate. Worse than a flat tax rate, actually, since consumption rates do not scale linearly with income or wealth.

[DontBreakAlex]

I think he meant that you'd have the brackets apply to types of consumption instead of income level, so no tax on food, low tax on restaurants, medium tax on high-end electronics, insane tax on planes and yachts. I mean it sounds like it would be easier to maintain/enforce such tiering system than constantly fight with people trying to not technically be wealthy. Downside of course is that some people's luxuries are other's basic needs, but I wonder if there's been serious research on the implications of such system.

[SoftTalker]

Easiest thing would be to not have any tiers of consumption. The stuff people "need" to spend money on such as food and housing would be handled by an automatic rebate, effectively a UBI. No other welfare, assistance, etc. What you earn you keep, unless you spend it, then you pay tax.

[Manuel_D]

What "high end electronics" would be taxed at a medium rate? Do billionaires not just use iPhones? Most high end private planes are the same models as regional jets (e.g. Embraer ERJ line), so a tax on them would still be mostly impacting normal folks' plane tickets.

The core problem remains the same: consumption does not scale with wealth. If we limit taxes go a handful of goods and services, then demand is just going to shift to something else. Consumption taxes give billionaires the option to drastically reduce their tax burden by consuming less. The lifestyle of someone with a $20 million net worth is not that much worse than someone with a $2 billion net worth.

[greedo]

Consumption taxes are regressive in general and in particular with the 1%, they simply don't spend enough to have it impact their lifestyles.

[AnthonyMouse]

This is what parrots continuously say while ignoring that the original problem was that in the existing system they not only don't pay taxes on the money they don't spend, they don't even pay taxes on the money they do spend, because they can borrow what they want to spend instead of using taxable income and then defer capital gains or keep assets in shell corporations.

Getting from that to where they at least pay the same taxes as anyone else on the money they actually spend would be a marked improvement.

[greedo]

Yes, getting them to pay "something" is a good goal, but if it hurts people who are financially vulnerable is non-optimal.

[AnthonyMouse]

We already know how to solve that one though. You now have corporations and billionaires actually paying the consumption tax along with everyone else, so you take that money and use it for a UBI, which causes the effective rates on lower income people to be much lower or even negative even though everyone is still paying a uniform marginal rate.

[Manuel_D]

That scheme still wouldn't work. When that new corporation is first formed, it's near worthless. After the series of favorable deals, the value of each share in that corporation goes up. Thus it still incurs capital gains taxes.

Of course people will try to cheat taxes, but they'll try to cheat any form of tax: income, capital gains, inheritance taxes, etc. People are good to try and evade taxes regardless of the tax mechanism.

Consumption taxes are regressive: a sales tax is a flat tax that taxes a billion on their $10 latte the same as a poor person. Consumption also doesn't scale linearly with wealth: most billionaires don't consume 1000x as much as a millionaire.

[AnthonyMouse]

> After the series of favorable deals, the value of each share in that corporation goes up. Thus it still incurs capital gains taxes.

Only if you sell the shares, which they easily resolve by not doing.

> People are good to try and evade taxes regardless of the tax mechanism.

Which is why you should use the ones that are less susceptible to it rather than the ones that are more susceptible to it. Trying to identify the country in which "profit" is earned in an international supply chain, or value non-fungible assets not undergoing transactions, are easy to game. "You pay a given percentage when you buy something" is hard to game.

> Consumption taxes are regressive: a sales tax is a flat tax that taxes a billion on their $10 latte the same as a poor person.

The existing "progressive" income tax and benefits programs do worse than that: The billionaire pays less on $10 in marginal income than a poor person, because the taxes and benefits phase outs result in absurdly high marginal rates on the poor.

> Consumption also doesn't scale linearly with wealth: most billionaires don't consume 1000x as much as a millionaire.

Only if you're looking for it in the wrong place. A billionaire isn't going to buy a billion dollars in lattes, they're going to invest in some business ventures, which in turn are going to spend the money on equipment and vehicles and utilities and so on, i.e. consumption. You don't get a return on capital by sticking it in a mattress, you get a return by spending it to build or operate something.

[Manuel_D]

> The billionaire pays less on $10 in marginal income than a poor person, because the taxes and benefits phase outs result in absurdly high marginal rates on the poor.

This is just patently false. The highest marginal income tax rate is 37%.

If you've read articles claiming that billionaires pay some absurdly low tax rate, those articles are counting their capital gains as income. Which is just a flat out lie, since those gains don't actually get taxed until the gains are realized, and the value of that capital can go down.

[AnthonyMouse]

> This is just patently false. The highest marginal income tax rate is 37%.

Account for benefits phase outs as the tax on marginal income that they are and the marginal tax rate on lower income people is often well in excess of 37%. In some cases it has been in excess of 100% because many of the phase outs overlap and also combine with ordinary taxes.

[madaxe_again]

Lol nah. The assets are held by a trust. The trust, being a friendly bunch, loan you capital which it gets by liquidating assets, at a rate of 0% with “don’t worry about it” default terms. You’ll probably pay a management fee for each loan.

You croak, your heirs become the beneficiaries of the trust. Rinse, repeat.

[Manuel_D]

In this case, the beneficiaries of the trust pay income tax on the money they receive from the trust.

[madaxe_again]

You don’t pay income tax on loans, and the trust exists in a place with no CGT.

[Manuel_D]

It doesn't matter where the trust exists, what matters is that the people drawing from the trust pay income taxes on that money.

[dh2022]

Debt is usually rolled over if the billionaire is still rich (banks will do that for fees). The only expenses are the interest charges- which were small 3 years ago but larger now because of how interest rate increased.

Re: estate taxes - almost no ultra rich pays them, even without surviving wife. According tom Garry Cohn (former big kahuna at Goldman Sachd and former treasury something or other in the first Trump admin) only morons pay estate taxes : https://www.cnbc.com/2017/08/29/only-morons-pay-the-estate-t...

[Manuel_D]

As per your linked article, they mainly either give away their money to charity, or they set up trusts. When beneficiaries receive money from the trust, it's taxed as income.

[frmersdog]

You could also just... not pay. And then lawyer-up when the IRS comes after you. (They will not come after you, because they know you've lawyered-up and aren't going to make it easy.)

IIRC this is part of how they avoid taxes in general. Penalties don't hurt enough for the ones who do eventually face them.

[dh2022]

You missed this part in the article: “ Estate tax planning has become so effective that wealthy families can now easily pass large portions of their estates to their heirs without paying the tax”

The beneficiaries then set up their own tax avoidance schemes. With the effect only rich people with poor tax planning skills, to quote Gary Cohn again, end up pay the estate tax.

[Manuel_D]

Without paying the estate tax, but when those heirs draw money from the trust it's not taxed as income.