r/funny SHELDON Nov 13 '21 Silver 1 Helpful 1 Wholesome 3 Take My Energy 2

Monopoly Money Verified

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10.4k Upvotes

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600

u/Sitherio Nov 13 '21

Honestly I'm really sad I didn't understand how that works at all. But it's definitely a thing that financially works

400

u/Alkanfel Nov 13 '21

They take out loans using their portfolio as collateral. If the economy continues to grow, said portfolio is worth more when they pay it off than it was when they took out the loan. So they just take out another one and repeat the process.

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u/Th3_Admiral Nov 13 '21

But how do they pay off the loan? Don't they have to actually aquire cash somewhere to do that, and in the process pay taxes on that cash? I just don't get how they manage to avoid paying taxes anywhere in this process.

231

u/turnturnburn Nov 13 '21

You pay-off the loans with the next loan. If I took out a loan for 10 million then take out a loan for 15 next time, you use some of the remaining money from the first loan plus the additional amount to pay off the first loan.

171

u/sin-and-love Nov 13 '21

So they ponzi scheme themselves?

335

u/FixBreakRepeat Nov 13 '21

Well this is why it's a strategy for rich people, you have to have collateral to cover the loan. The money exists and you have it. You're just borrowing the bank's money at 4% interest to avoid paying 20% in taxes on your money.

(Percentages are made up just to illustrate the point.)

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u/ronflair Nov 13 '21

So what you’re telling me is that if I get together with some colleagues and value some up and coming artist’s work into the stratosphere, we can use said art works as collateral.

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u/SolidSquid Nov 13 '21

That's literally how the fine art industry works, and it's why Daniel Radcliffe wasn't allowed to buy a piece by Jim Hodges because the gallery was "looking for a more prestigious collector". If you're not in the money shuffling scam they don't want you to reduce the stock available to do the shuffling with

3

u/ronflair Nov 13 '21

Wow. Very interesting. I did not know about the “prestigious collector” criteria. Doesn’t that raise a red flag for the IRS?

7

u/SolidSquid Nov 13 '21

No, because it's all *technically* legal. They're just being "selective" about their customer base, and can argue that selling to anyone who isn't an existing collector will damage the value of the other stock they have from that artist.

I mean, the IRS could *probably* do something about it, but they don't really have the funds or political support to do it because of who these collectors tend to be. Too many politicians and campaign contributors who have bought into it

edit: Technically legal for the gallery to do what they do, and as long as nobody openly discusses it they can just turn a blind eye and pretend it's legit, since the galleries profit from this too

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u/soulsoda Nov 13 '21

Sure but you need rich buddies and clout as money needs to be exchanged. You can inflate works of art and even donate them to museums etc and enjoy nice tax breaks! Or use them as collateral as discussed

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u/RuneanPrincess Nov 13 '21

Collateral works, but art donations don't work that way. There's a reason most expensive art is on loan indefinitely and not donated.

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u/Qprime0 Nov 13 '21

That would be almost exactly what happened in the last economic crisis when everyone was yarning on and on about 'junk debt' and 'overvalued assets'. except iirc it was the banks themselves that were ponzi scheming themselves... which is now illegal because they damn near burned down the world economy with that one.

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u/Freethecrafts Nov 13 '21

It was fraud then as it is now. Nobody big went to jail for it. It’s not any more illegal now than it was then, in exactly the same way. They knowingly bundled garbage, with high stability paper on top, and had their friends do valuation.

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u/CreativeCarbon Nov 13 '21

Aren't you basically just describing Bitcoin?

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u/Scrapheaper Nov 13 '21

No. Collateral is something where the value is stable.

You can't promise to pay back your loans with $100,000 worth of bitcoin if it's going to be worth $60,000 next month

1

u/toastjam Nov 13 '21

You can definitely take loans on Bitcoin -- maybe not through normal banks but services exist. If the price drops too much they will margin call it though and force you to pay it back or liquidate.

5

u/froman007 Nov 13 '21

Literally its anything that doesn't possess any material value. That's the point of a representative currency. It's always been a dumbass idea that exists solely as human intention and the desire for scarcity, and enforced by threat of state sanctioned violence.

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u/curtmack Nov 13 '21 edited Nov 13 '21

I can't tell whether you need to go outside more or less.

Representative currency was invented so people don't have to trade in actual sheep anymore, not out of some "desire for scarcity." Food was already pretty scarce back then.

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u/What_four Nov 13 '21

Like the way money devaluation really kicked into gear when we went off the gold standard.

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u/LeoRidesHisBike Nov 13 '21

Nowhere near 4%. Billionaires get 1.5%. Someone with a $1m portfolio can get 4% easy.

You might realize that paying 20% once is cheaper than paying even the compounding interest on a 1.5% loan that you essentially never pay off (well, it's a balloon payoff loan without intermediate payments). However, because you keep your assets invested, as long as they grow faster than your loan's interest rate, it's better to borrow against those assets than sell, pay the tax, and spend the money.

This is a fine strategy for an asset that is always growing. If the portfolio's value drops below the loans minimum capitalization level... well, you're screwed. Margin gets called, you have to pay off the loan immediately.

If die with the loan outstanding, your stock gets inherited with a step-up basis, so none of the capital gains tax is ever paid.

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u/FixBreakRepeat Nov 13 '21

I definitely agree with you on everything you said, but I wanted to add some more context as well.

The things being purchased with the loans also have value. Now, I'm sure much of that money is being spend on wages, consumables, food, or other things that don't appreciate in value, but things like real estate purchased with these loans then become potential assets that also continue to drive the growth of the net worth of our hypothetical billionaire.

Basically, the loaned money can be used to buy real assets that generate value that can then be used as collateral for more loans.

This sounds like a terribly fragile system and in my mind it's absolutely ridiculous, but for the people involved it's not as risky as it sounds because we're talking about such big investments that the banks and financial institutions will put in significant work to keep everything stable.

So for instance, if someone buys a house, rents it out, uses the income to get another loan on a second house and has an issue paying the mortgages, the bank will just take the houses.

If a billionaire has trouble making loan payments it can undermine confidence in the entire financial system. They'll bend over backwards and lobby the government to reduce the fallout in a situation like that.

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u/LeoRidesHisBike Nov 14 '21

Yes, absolutely correct. It's win/win for the bank and the capitalist, because the bank gets an extremely low risk, stable way to earn over the long term, and the borrower leverages their capital (taking nearly all the risk), gets liquidity without double-taxation, and is able to pass on their estate through a trust without extreme dilution.

If we want to have a truly loophole-free tax system, we need to get away from long-term complex measurement entirely and move to a pure consumption basis. That's a hard pill to swallow for governments, though, because it means everything gets more transparent: subsidies can no longer be hidden behind 2nd and 3rd order tax credits, but must be out in the sunlight as naked government spending.

The primary argument against consumption taxes is that they seem regressive, which is true for the simplest version of them. This can be mitigated through a UBI system: a check from the government that covers all the tax you would pay if you made X amount of money (whatever the level your society wants to set).

It's not possible to be gradually progressive with that scheme, but there are much fewer opportunities to be subtly tax-evasive with it. Since it operates like a sales tax, there are existing mechanisms already scaled up to collect it, and the measurement of such a tax is less gameable, since it depends on point-in-time measurements of known values and not subjective measures like "income" or "unrealized asset value".

All consumption would be taxed on new goods and all services, no exceptions whatsoever. No taxes on used goods at all. That would encourage a culture of reuse and maintaining what you've got over disposability. The tax rate could not be tiny, and it would be more in your face, but could be rolled into retail transaction systems seamlessly. There are so many advantages for society that the only reason we don't do it is because it would be more fair, so the existing powers that benefit from our byzantine tax setup are the reason we don't do it.

The left is opposed to it because it doesn't punish the rich enough. The right is opposed to it because they exploit the current system, and there's much less chance they could game such a tax. The statists are opposed to it because it would mean less control over the economy (their subsidies would be out in the sunshine). The laissez-faire are opposed to it because it's a naked tax.

The only people who would be for such a thing are the folks stuck in the middle of this. The workers, the salaried, the unpowerful. There are many of us, but we do not hold the reins of power.

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u/pheoxs Nov 13 '21

It works when your equity grows faster than the loan.

Think: I have 100mm in shares so I take out a 10mm loan that I’ll pay back 15mm on five years later. Then five years rolls up and now your company shares are worth 200mm. So when you go back and say hey for that 15mm loan I owe, how about I take a 30mm loan out to cover it and give me some spending cash. They look at 200mm in assets and go sure you can cover it. Then it continues on and on.

They only pay the interest on the loan which is say 5% or so. That’s a tiny fraction of what income tax is paid by most.

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u/EsquilaxM Nov 13 '21

At least measure the shares in metres, like everyone else.

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u/Ottormatic Nov 13 '21

Do they by chance pay interest on the loan to a banking company that they have stock in? Are they literally paying themselves?

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u/IGDetail Nov 13 '21

Or against whoever they’re borrowing from. The banks have to be wise to this and I question why they would just play along. Seems like the lenders are losing in in the long run - no capital is created, similar to a ponzi.

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u/DeathHopper Nov 13 '21

The lenders are collecting insane amounts in interest. Even if the rate is ridiculously low, due to the loan amounts it is still a lot, and it's pretty much guaranteed 0 risk.

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u/IGDetail Nov 13 '21 edited Nov 13 '21

I wouldn’t say it’s a zero risk, there’s never a zero risk. In the end, the last bank in the pyramid pile could potentially get the shaft. You’re paying one loan with another loan with another loan. It could get massive enough that there’s not a bank in the world that could cover this. I’m being slightly facetious but just trying to illustrate the risk - this isn’t a normal risk evaluation by a bank and I’d be curious, real curious, about the details of this very unique setup.

Edit: I’m overthinking this but it sounds less like a ponzi and more like money laundering through a bank.

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u/DeathHopper Nov 13 '21

I imagine the collateral put up easily matches the loan value and since it is stocks, is actually projected to increase in value. The bank may even come out ahead if the loan for whatever reason defaulted.

Negative risk? /s

10

u/IGDetail Nov 13 '21

It all just sounds so.. unethical. I surely would want to know if my bank (as an investor, mind you) was involved with dealings like this and understand their full evaluation.

Edit: and, of course, you do a simple search about bezos and lending and they’re working with BofA to offer lending services. I’m just making myself queasy now 😆

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u/Be_quiet_Im_thinking Nov 13 '21 edited Nov 13 '21

The banks lend out a fraction of the collateral stocks worth and should the stocks value drop below a certain point the bank would likely ask for more collateral. Also I wouldn’t be surprised if these banks occasionally lend out the stock for people to short with for fee. I don’t like this one bit at all because it allows rich individuals to squeeze massive share prices (by forever holding) for their stock while enjoying that squeezed wealth tax free.

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u/nosradom Nov 13 '21

The way these loans work is you can only get X% of your stocks value. If your stock value drops below the percentage of your loan. The bank automatically sells your stock and pay off the loan until it is below X%.

So the banks only risk is if the stock drops faster than they can sell it. The person taking the loan actually holds a lot of the risk because they could be forced to sell their stock at a bad time when the value is temporarily low.

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u/singlow Nov 13 '21

There are points in time where billionaires will unavoidably have liquidity. At that point they may pay off some of these loans with cash instead of a new loan. But they will try time those liquidity events to take advantage of offsetting losses or other tax mitigation rather than selling when its high and paying huge amounts of taxes.

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u/Ducks_have_heads Nov 13 '21

Perpetual loans are a lenders wet dream.

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u/RuneanPrincess Nov 13 '21

Haha no. This is how literally every company on earth works. Eventually he pays it off, even if it's just his estate after death. Also if he ever sells stock he has to pay taxes on that. The real shame is that capital gains tax is minimal and he wont have nearly the taxes we pay.

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u/Seathttrail Nov 13 '21

It's the buy, borrow and die strategy.

They keep borrowing until they die ( some of these loans are 99 years). When they die, their heirs will inherit the loan and they would need to sell some assets, but because of the law, they don't owe interest, just the initial cost of the loan.

Then on top of that, because of the step-ups loophole, the heirs don't have to pay any taxes on the inherited wealth.

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u/KaiWolf1898 Nov 13 '21

So why are some of these banks offering 99 year loans if they know that eventually their borrower could die and they'll lose the ability to collect the interest?

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u/Seathttrail Nov 13 '21

Because the people running those banks are doing the same thing and it's not just banks.

Apple CEO Tim Cook is famous for having a salary of $1. Well, he has a salary of $1 because that's the money that will be taxed. Apple gives Tim a 1 billion dollar loan with a 0.01 interest ( ie lower than inflation) with a 99 year term. This is a lost for Apple, but it's viewed as paying their CEO.

Oh, and because it's a loan with a loss, Apple gets to deduct the cost from their taxes too, so its still a win-win.

Which goes for Banks too, any 'loses' are deductibles for taxes.

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u/garlicroastedpotato Nov 13 '21

Oh it's worse than that, you pay off the old loan with a new loan that will have lower interest rates (because your asset is worth more). After a while the interest on these loans becomes lower than mortgage loans.

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u/123mop Nov 13 '21

The more secure the investment the lower the interest. Who's more likely to be able to pay off their loan, a randomly selected home buyer or a guy who owns massive amounts of a global business?

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u/ihasinterweb Nov 13 '21

A guy who owns massive business and has repaid the last 10 loans.

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u/PseudoKirby Nov 13 '21

so its:

1k stocks 10m loan

years later

1k stocks 15m loan pay off first loan get 1k back then reloan out 1k again? +$5 million profit?

like a juggling act?

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u/turnturnburn Nov 13 '21

Kinda, but remember the value of those stocks are constantly rising, so 1k stocks should technically be able to be used to secure larger and larger loans.

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u/HiMyNameIs_REDACTED_ Nov 13 '21

As long as that 1k stock continues to climb in value, yes. If it's collateral for a 10m loan one year, and years later worth 30m, then you can take another loan to cover the first.

If you wanna get extra skeevy, banks are totally on board with this and willing to give stupidly low interest, letting you do this easier and longer.

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u/wintrparkgrl Nov 13 '21

More like take a loan against 1k stock worth 10 million, stock grows to be worth 15 million by the time loan is needed to be paid, take loan of 15 million, pay off first loan. Repeat ad infinatum

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u/PseudoKirby Nov 13 '21

yeah, but thats exactly what I said..

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u/toomanypumpfakes Nov 13 '21 edited Nov 14 '21

The bank or whoever has given them the cash against their assets is perfectly happy to let the interest accumulate against these assets which are appreciating. That’s a sure fire return—Tesla or Amazon stock is likely not going to 0 any time soon. They’ll get paid back eventually.

Now if the stock were to drop like 50+% then depending on when they took out the loan the bank might have a problem.

For concrete numbers say you have $10 million in stock with a brokerage and you ask to take out a loan of $5 million. That’s 50% of your account BUT you haven’t sold any stock so you still have the $10 million in stock plus $5 million which you need to pay back… some day. If your account keeps going up to $15 million the bank is like “cool, well sure they’re accumulating interest but their stock has kept going up so I know they’re good for it.”

Now what if there’s a huge market crash and your stock drops by 75%? When your account hits your loan value ($5 million) the bank will say “ooooh sorry… looks like your account value has dropped below this loan so we’re just going to take the whole account to pay ourselves back”. This is a simplification of the math but basically what would happen.

So for Bezos or Musk because they’re worth hundreds of billions (and they do each sell a few billion of stock each year and pay taxes on that but on a specific schedule) and the amount of loans they’re taking out is such a small portion of their overall net worth, whoever is giving them the loan against that asset isn’t worried about getting paid back so they’re perfectly happy to keep that loan and interest riding until they die.

And the loans aren’t income since it’s just a loan with the asset as collateral. They don’t sell the asset so they don’t pay taxes. That’s like if I refinance my house and take out cash I don’t count that as income since it was already part of my house’s equity that I owned, I’m just borrowing the cash from a bank with my house as collateral.

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u/ken830 Nov 13 '21

Bravo. Finally someone in this thread that understands. We got a bunch of idiots who have only a vague idea of how asset backed loans work and are spewing misleading information. Only thing you got "wrong" is Musk selling regularly. His current sale is an extremely rare event. He usually only sells to pay taxes when exercising expiring options.

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u/toomanypumpfakes Nov 13 '21

Gotcha, I knew that Bezos regularly sells stock to fund his hobbies (WaPo, Blue Origin) and just figured Musk did the same.

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u/AlmanacPony Nov 13 '21

Assets.

When they die, their assets get liquidated into their worth and its all paid off to the bank. They get to live in the lap of luxury with essentially limitless money, and never have to have it taxed or actually paid for in their lifetime.

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u/Th3_Admiral Nov 13 '21

So they just don't pay off the loans at all until they die? So Elon Musk is hundreds of millions of dollars in debt right now? That doesn't sound right, but I seriously don't get how this works so maybe it really is that simple.

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u/Metalliquotes Nov 13 '21

I think if they only take enough salary to pay premium on loans it becomes a write off? So they pay the tax up front but get it back again? I don't get it really either but they definitely don't just not pay it off until they die

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u/the_electric_bicycle Nov 13 '21

Look up “Buy, Borrow, Die”.

From my understanding you can just take out new loans to pay off older ones. So take out a $5 million dollar loan, and use that as if it was your income to pay all your bills and everything Take 5% from that to cover interest. Then in a couple of years take out a $10 million dollar loan. Pay off the first loan with half of it and use the rest to fund your life. Rinse and repeat until you die. You have never sold your assets so you have never had to pay capital gains tax on them, and now they are part of an estate which has much different tax laws and other loopholes to decrease the amount of tax that is paid.

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u/MYule90 Nov 13 '21

Think of it like this: You own a really nice house. Everything you own is worth 20 million dollars. You own this outright. Because you own this stuff outright, a bank says "Hey, we'll loan you a hundred thousand dollars at a .5% interest rate, because your stuff is worth 20 million. You don't have to pay it back for a few years. A few years goes by, and that house is worth a lot more money. It's worth 100 Million. You get a new loan, this one worth 5 million. You pay off the old loan, so it looks like you're paying your debt.

Now to put that into perspective, Elon is worth 281 billion. Money is literally meaningless to him, it's just words

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u/BusinessBear53 Nov 13 '21

If the yearly interest on the loans is significantly smaller than income tax owed, you're still ahead.

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u/Th3_Admiral Nov 13 '21

I get that, but with zero income how is he paying the interest? And when he blows through the $100 million from the first loan, does he just get another? How does he pay these loans off? They can't just keep piling up, right? I don't get any of this lol

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u/obp5599 Nov 13 '21

You take a another loan to pay off the first loan. Thats literally it. You are using your net worth as collateral. So as the stock of the company goes up, they can borrow more in the future.

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u/Entaris Nov 13 '21

Plus, since you have insane amounts of capital whenever you need anything, everything you own is paid off, and just adds to your value. You don't always need more money so you don't always HAVE to keep more money on hand...

Then you go a step further. You have close to zero income, you donate to charities for tax breaks, which end up being a higher benefit to you then the amount off money you invest in a charity.

Billionaire economics is literally just made up nonsense.

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u/Frankwillie87 Nov 13 '21

You're hitting the nail on the head that people are ignoring.

Even at 1% simple yearly interest a 100 million dollar loan is 1 million on interest payments.

Except most loans aren't simple interest, and loans are usually amortized so that you pay interest first and not principal. Even when you do go to actually pay off the loan, the pay-off amount is more than just the outstanding principal balance.

They also ignore that this is just for federal taxes. These people still have to pay property taxes, sales tax, their businesses

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u/abell6 Nov 13 '21

Actually you set the interest rate on the loan lower than your distribution from the income producing asset. So in his case the dividend from the stock is his ceiling on interest, he earns the dividend and charges just less in interest on the loan. That way he's still gaining on the borrowed money, despite what others have said you still want to make money even if there is some tax on it. Your end game is betting on capital appreciation or at least preservation to pay off your loan.

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u/Skythewood Nov 13 '21

Here are some assumptions. The hundreds of millions of debt has a low interest rate, maybe 5%? Just ignore the interest rate for now, not important.

Next if he get all his salary of a billion, he will pay a lot of taxes, say 50%.

If the getting a loan gets him more money than paying taxes, he should do that. When he dies, the bank will just take the collateral (the assets) instead of the money.

Basically, he is selling his assets without selling his assets.

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u/Th3_Admiral Nov 13 '21

We're back to the "when he dies" thing though. What about while he's alive? Is he literally just accumulating loans and never paying them off? He still has to pay interest on them, even if it is super low, so he has to have income somewhere to pay that much at least.

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u/Skythewood Nov 13 '21

The debt interest grows, but his assets grows too. If the debt interest rate is 5%, and his asset grows 6%, then no problem. Besides, he can just take another loan to pay off the interest.

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u/DreamloreDegenerate Nov 13 '21

Yes, keep taking out loans instead of liquidating his own assets.

He has about $550 million in personal loans as of last year.

In 2019 he had around $500M, which means he got a cool 50 million dollar in tax free cash last year.

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u/flyingtrucky Nov 13 '21

You pay interest with money someone loans you.

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u/rocknthenumbers8 Nov 13 '21

They still would have to make payments on the loan so they do have to sell some stock. Also there are property taxes on their mansions and of course sales taxes on all their goodies. Plus there is the corporate taxes and payroll taxes. The tax structure def benefits business owners in general but its not like they are paying nothing. I think the real problem is the feds QE programs and money creation. This drives inflation and greatly benefits asset owners over workers and savers.

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u/the_electric_bicycle Nov 13 '21

They can make payments on the loan with the money from the loan though. And sure, they have to pay property taxes and sales tax; but everyday people pay those as well as an income tax (with income tax being the largest portion).

Think of it this way, as long as the interest of the loan (let’s say within 0-5%) is lower than the amount they would have to pay in income tax for the same amount (let’s say within 40-50%) they can come out ahead.

So while you and I pay 30% of our income on income tax, 3% on property tax (if we’re lucky enough to own a property), and 5% on sales tax; billionaires only pay the 3% property tax and 5% sales tax (with and additional 5% paid to the bank instead of the government).

Also, I think you may not understand how little corporation pay in actual tax. Over the past 10 years Amazon has had an effective tax rate of 4.7%. Imagine how much more money you would have if your income taxes were only 4.7%

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u/Frankwillie87 Nov 13 '21

That point about Amazon isn't a fair comparison. Amazon is a C Corporation which means that Jeff Bezo's and other investors don't pay 4.7% of income tax on that money. They also pay 23.6% in dividends plus NIT when it's distributed as a LTCG.

If it's not LTCG, then they pay ordinary income rates PLUS that 4.7% of corporate effective income tax. The same dollar is taxed twice.

That also ignores the 10 years of losses on start-up and the fact that their massive capital investments will no longer have accelerated depreciation soon.

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u/ozspook Nov 13 '21

They get "paid" in stock options, so more stock available at a fixed low price, essentially.

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u/singlow Nov 13 '21

There will be times when he will need to liquidate for other reasons and at that point he will likely pay of some of the loans with cash. Usually those events would be timed so that there are offsetting losses which mitigate the tax liability if possible. If you just sell stock every time you need some cash it can be expensive for taxes and other reasons. The loans allow them to pick and choose when to sell stocks according to the best times to do that, which may not be the same time you need to buy a house or a boat.

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u/obp5599 Nov 13 '21

Debt is only a bad word to average people. Thats why everyone loves to complain about the national debt, and always bring up companies being in debt. It is intentional. Debt is used as leverage. Its not the same thing that the rest of us do when we take a loan

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u/soulsoda Nov 13 '21

He's not in debt. None of them are. Their NET worth is very much positive. What's been described here is extremely wealthy people putting up their assets (in this case stock) to get liquidity (cash) for a small fees from the banks but also allows them to avoid paying tax (20-50%) because they aren't technically generating income. Even if they die, the loans will be paid off but their assets value (stock, cash, property, valuables etc) will be worth far more than the bank loans owed.

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u/asillynert Nov 13 '21

Yes and no so there is various things they do like "accept income" but as it goes toward paying interest on loans poof its a write off. (non taxable)

Then alot of living expenses day to day they drive a "company car get meal allowances and other company perks that are not taxed or taxed significantly less than would be normally.

As for family money getting money to kids or friends or whomever thats why they park their money in charitys. Donate tax free give friend of family executive position where they answer 1 email a month and collect million bucks or even do "perks thing again".

As for why its better to have low interest loan than paying taxes for them is they essentially get to invest or keep that money invest in stocks. Risk free so bezos/musk have 80-100 billion taxpayer dollars in stocks. And if its lost they owe no taxes if it grows they only owe 15% of how much it grew so if 100 billion became 100 billion they pay the 15 billion plus original income amount which they will weasel out of most.

As for interest concerns inbetween getting the free money via avoiding taxes and investing. And fact that grow rates of most portfolios exceed low interest loans. They make far more "not paying off loans and keeping it all invested.

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u/Aaron_Hamm Nov 13 '21

Interest paid on personal loans isn't tax deductible.

Do any of you guys actually know what you're talking about?

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u/asillynert Nov 13 '21

True but doesn't have to be personal. Pull mortgage on investment propertys tada setup llc and pull loan through it and other forms of deductible interest and some one example Carl Icahn despite have large income got to pay 0. There are hoops problem is your assuming "all savings deductions/writeoffs come from one spot" or that they would merely rely on a personal loan rather than a business one etc. You got to think more like a person with billions on line and no ethics.

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u/prallundfeucht Nov 13 '21

the secret ingredient is corruption

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u/PseudonymGoesHere Nov 13 '21

The way they avoid taxes is by dying. Selling the stock is what triggers taxes. When that happens, the taxes are based on the income from the sale price less the cost basis. Normally, the cost basis is what you paid for the stock. However, if you die, your heirs will inherit the stock with a cost basis at the time of inheritance. They immediately sell the stock, making “zero” profit in the processes and pay off the loan for good.

Not directly related, but cost basis also comes into play with donations. If I sell my stock and donate cash, I have to pay taxes first, so the charity gets less money. If, however, I donate stock, I get to write off the current value of the stock, but the charity inherits my cost basis. However, since they’re a non profit, they can sell the stock, realize the profit, and then proceed to pay no taxes on it.

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u/FACE_Ghost Nov 13 '21

People like Jeff and Elon own stocks, they also have options for those stocks that expire every so often, they get taxed 57% on those stock sales; and that's the money they use to pay off whatever outstanding loans if needed.

Generally speaking - let's say I take out a 100 million dollar loan at 10% interest rate annually.

That means I have to pay 10 million dollars a year to keep that 100 million. If Happen to own a corporation worth let's say 100 Billion, I can keep taking out 100 million dollar loans using my assets as "collateral" and since stocks, and most assets are not liquidated; you literally have very little money as a billionaire. You basically purchase everything out of loan money. Let's say you take out a 100 million dollar loan 10 times over 10 years, you then take another 100 million dollar loan and pay off the other 10 years worth of loans; over that time you've also saved up some money from expiring stock options so you pay off the remainder of the loans.

Rinse and repeat, you've almost spent zero of your actual money; you've been taxed on half of what you've "earned" and no one can prevent you from taking out the loans because you are good for the money.

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u/whiskeyriver0987 Nov 13 '21

Not really. If the portfolio value increases faster than the interest rate you could just take out a larger loan every few years. Portfolio loans interest are typically in the 3-9% range, and you can generally only get up to 50% of its value. Even if you are on the higher end of that interest rate, 5% growth in your portfolio means it will increase in value faster than the interest rate and you could hypothetically just use the money you were loaned to pay back the loan, then when you run out of money you take out a loan against your now larger portfolio and continue the process indefinitely. Even an index fund will net about 10% growth on average, meaning you will actually have money in the bank at all times, but on paper you will be in debt, and since loans aren't taxable at no point will you pay taxes income taxes.

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u/A_Passing_Redditor Nov 13 '21

Ok, but you have to pay back the loan eventually. Banks aren't in the business of lending money without expecting it back, so they do have to sell stock. When they sell it they will pay capital gains.

These loans have much less to do with avoiding taxes. What they do is preserve your stake in the company giving you control and also profiting you if you think the stock will go up during the term of the loan.

My basic point is you have to pay the loan, and when you do you have to sell stock to cover it. All they do is delay the consequences of selling stock, they don't negate them.

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u/ryathal Nov 13 '21

Refinancing pays a loan back. Banks don't care a ton how a loan gets paid back. They get a guaranteed return rate of the interest for however many months the loan exists. If it's paid off in two months they get the money back to loan out again, if it takes 30 years, they got a stable investment.

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u/gratefulyme Nov 13 '21

Now we're starting to be able to do this with crypto! The lenders doing this are doing roughly 50% value of asset with I believe around 8-10% interest, if I recall correctly. Not super worth it currently unless you need the money and want to keep your crypto, kind of like a payday loan. Luckily yoy gains easily cover that interest on btc.

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u/Sitherio Nov 13 '21

Oh I'm sure someone can try to explain it. But portfolios and stocks are above how I conceive money conceptually. So I'd literally have to study it like a new school subject to truly wrap my head around it.

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u/The_Quicktrigger Nov 13 '21

yeah to someone who lives paycheck to paycheck, the idea of non-existant money being used to loan out non-existant money, to pay off non-existant money is just...too foreign a concept. Probably why they can get away with it, because the masses don't know any better.

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u/obp5599 Nov 13 '21

The money exists though. Its not imaginary. They are taking a loan with their stock value as collateral. Stocks generally go up over time (in successful companies). So they take out a loan now, then 5 years later when their net worth is more because the stock goes up, they take out a bigger loan to pay off the smaller one, so on and on

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u/SolidSquid Nov 13 '21

Basically billionaires are so rich they take out loans in the same way governments do, with interest rates low enough and over a long enough period that inflation is enough to pay it off

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u/Dixo0118 Nov 13 '21

Why don't people hate the system more than the people? Everything they do is legal

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u/BurzerKing Nov 13 '21

Because it’s easier to say “tax the rich” than to research your candidates and then vote on one that will virtue signal instead of one who actually benefits you.

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u/Pendu_uM Nov 13 '21

Imagine saying this and the worst part is, it's the top comment

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u/littleMAS Nov 13 '21

More money is spent planning, preparing, and avoiding taxes than is collected by the government.

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u/marco99_99 Nov 13 '21

Don't listen to the reddit dribble, the company that they own/ companies they take the loan from already pay taxes from their profits, taking a salary from assets you already own would be like paying taxes twice, which I'm sure reddit would love to see that happen

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u/CalamariAce Nov 13 '21

This is a recent phenomena only made possible by the Fed setting artificially low interest rates. Let the market set interest rates and this problem goes away.

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u/Tkainzero Nov 13 '21

I’m really poor. I started investing when the government sent me a 1200$ check

I will 100% be taking a loan against my assets to buy a house

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u/ABigFanOfStuff Nov 13 '21

Why billionaires don't pay taxes in cases like this sometimes:

Guys like Bezos own a ton of stock in something valuable like amazon. The government only taxes you on proceeds when you sell it. So as long as he never sells he's OK.

But ultimately the tax man will get his due. One day Bezos will either sell his stock or die. And then uncle sam will get that money.

So he's not really dodging taxes, just procrastinating on them.

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u/CharonsLittleHelper Nov 13 '21

He sold about $6b in Amazon stock in May (largely to fund Blue Origin) and paid capital gains on it. This comic is just wrong.

https://www.forbes.com/sites/rachelsandler/2021/05/11/jeff-bezos-sells-third-batch-of-amazon-shares-in-a-week/?sh=47c396a5792c

And about $10b in 2020.

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u/[deleted] Nov 13 '21

Yes, he is only paying 23.5% tax on those stocks sales. His tax bracket would be 37% if that money was paid directly to him by the company.

But let's talk about Richard Morgan if you want a more accurate but lesser known example. He is a oil and gas tycoon, which charitably is only given a 1$ annual salary but also stock options. As of this year, he has pledged around $700 millions in stocks for loans and plans to keep going.

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u/Aaron_Hamm Nov 13 '21

Shares of stock received or purchased through a stock plan are considered income and generally subject to ordinary income taxes. Additionally, when shares are sold, you'll need to report the capital gain or loss.

https://www.fidelity.com/go/stock-plan-services/understanding-taxes

How does this factor in?

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u/BenOfTomorrow Nov 13 '21

When shares are given as compensation, they are taxed at their current value as ordinary income. You can’t get away with paying less tax by paying people in stock instead of cash - it’s taxed the same.

When you sell that stock it is taxed again on the increase in value from when you got it - this is capital gains.

Bezos is not getting paid in stock; he has already had the stock for a long time, he’s just selling it now and realizing the increased value in cash and getting taxed on the difference.

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u/tofuking Nov 13 '21

Exactly!!! I don't know why this is buried so far down. People and their half-assed knowledge about taxes and borrowing and collateral... without doing really shady shit (fake charities/laundering/maybe some offshoring) you can't dodge the bulk of your taxes.

This is what they mean by "a little knowledge is a dangerous thing".

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u/hideawaycreek Nov 13 '21

Shares of stock received or purchased through a stock plan are valued at a certain agreed upon price. My company’s stock plan, for example, placed this at $.10/share. Even though the company went up in value over time, my “total earnings” from stock year-to-year were based upon this.

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u/scottygras Nov 13 '21

The term “generally” I imagine?

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u/[deleted] Nov 13 '21

Make the math yourself. The link from Charons affirms Jeff Bezos sold $1.7 billion of stocks and will net $1.3 billion after tax. Meaning he paid a 23.5% tax.

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u/flyingbertman Nov 13 '21

So you're thinking 1.4 billion tax isn't enough?

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u/Awanderinglolplayer Nov 13 '21

The comic isn’t wrong though lol. For large sums of money(>1bn) they frequently will sell and incur a tax from the taxable event.

For smaller finances they take out loans, like shown here by the comment. They take a loan against their stock, not taxable, their stock price rises, they take another, bigger loan, for the same or less stock, and pay off the list loan with that. No taxes paid.

Comic isn’t wrong cause you bring up a different transaction which has nothing to do with the post

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u/[deleted] Nov 13 '21

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u/fr-_-mage Nov 13 '21

there's estate tax thats due.

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u/JanesPlainShameTrain Nov 13 '21

Estate tax is 40% when the taxable amount is greater than but not equal to 1M

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u/ABigFanOfStuff Nov 13 '21

Which will definitely apply Bezos lol

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u/[deleted] Nov 13 '21

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u/[deleted] Nov 13 '21

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u/[deleted] Nov 13 '21

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u/Just_Look_Around_You Nov 13 '21

Yeah people have started to zoom in on this quite a lot. And I don’t really get the problem with it. It will get taxed on disposition or transfer

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u/The_Verminking Nov 13 '21

Procrastinating.

Yes. He's 'procrastinating' on taxes in the same way that Genghis Khan 'hurt a couple of people.'

Getting out of paying your dues until you die is called "stealing" when regular people do it.

Also, if you think that he's gonna let his money go anywhere other than where he wants it to, look into the Walton Family Foundation.

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u/Inphearian Nov 13 '21

Be mad at your Congress people for letting these loop holes exist.

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u/von_neumann Nov 13 '21

What are the "loop holes" being exploited exactly and what exactly do you propose your congressman should do about them?

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u/ABigFanOfStuff Nov 13 '21

I assume they are talking about donating everything to a charitable foundation and writing off the entire thing.

While I do agree that charitable donations should not be tax deductible, I would caveat a few things:

1) Most of the money does end up being used for charity, it's not being used for personal consumption of billionaires so one could argue it's a net positive for society.

2) In general the idea of taxing capital gains at the time they are realized (ie when you sell stock) does make sense. It seems strange to me to tax it based on fluctuating share price as has been proposed by some in congress recently.

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u/BenOfTomorrow Nov 13 '21

You just write it off!

Write-offs aren’t a magic money making machine. Charitable donations can be tax-deductible, which means they reduce your taxable income by that much, not your tax owed. If you made a deductible $100 donation, you might save…$40 in income tax.

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u/kaosi_schain Nov 13 '21

The easiest way to know it's AAALLL a loop hole? Money/worth is a human and subjective concept and the people with the most power/fear get to decide that value.

A company is worth $400 billion? That tells me absolutely nothing about what it does for it's people, society, etc. You should tell me that every single one of your 45,235 employees are compensated fairly and have the ability to care for themselves while working for you. But you can't do that, because fair compensation is also entirely subjective.

Human wealth is the flimsy fucking concept to ever construct a society around and I'll be just fine if/when it's gone.

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u/The_Verminking Nov 13 '21

I'm trying very hard not to be mad at anyone, even and especially those responsible, while still opposing the horror they perpetuate. They force so much on us, we don't deserve that burning, corrosive negativity as well. It's hard and it takes constant vigilance, and I'm not perfect, but I choose to stay as positive about it as I can. We can change things, if we just stand united and refuse to be swayed, including being spurred into rash action.

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u/georgealmost Nov 13 '21

So you don't know, got it.

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u/Skellum Nov 13 '21

Getting out of paying your dues until you die is called "stealing" when regular people do it.

Utilizing every service everyone else uses and more so. Who uses military and police protection the most? The ultra wealthy. Who depends on society continuing to run and exist as it does the most? The ultra wealthy.

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u/[deleted] Nov 13 '21

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u/rollie82 Nov 13 '21

This is my understanding as well. Like, one year he borrows $100m. 5 years later, the loan is due, and he's spent that $100m, so he borrows $220m ($120m to pay off previous debt, $100m for next 5 years). Then 5 years later, he borrows $350m, then $520m, etc. Eventually as you say he dies or has to cash out, at which point his stock is sold and is taxed.

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u/crayton-story Nov 13 '21

An argument for a consumption tax (sales tax) and value added tax for businesses. Whether they earn a salary, sell stock or take a loan they pay tax when they buy something.

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u/PrivateTumbleweed Nov 13 '21

Is this just a rich way of using a credit card to pay off another card with lower interest?

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u/pre_nerf_infestor Nov 13 '21

Yes. It's the classic case of "everybody can do it but some people can do it more than other people can". The egregious bit is how this essentially let's them dodge taxes.

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u/calthopian Nov 13 '21

It also allows them to have currency without forfeiting control over their company.

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u/UentsiKapwepwe Nov 13 '21

Until we actually fix cheats like these, taxes on people like this making over $400k are not "making the rich pay their fair hair", it's a squeeze on the productive wealthy such as surgeons while the mega rich continue to pay nothing

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u/Xinlitik Nov 13 '21

Yea it’s a complete joke. The 400k-2mill range probably pays the highest tax rate in the US (close to 40% in federal alone). Billionaires like musk and bezos pay 1-12%… and none of that will change with any of the current legislation

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u/ChadMcRad Nov 13 '21

It's not entirely "cheats." It's just how wealth works at that level.

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u/Chaos43mta3u Nov 13 '21

Fuck the min wage... Let's fix the wage ratio

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u/kaosi_schain Nov 13 '21

At a certain point, it's literally just printing money for them? "Oh, we're gonna need $3 billion in 2023 for expansion? I'll just erase these zeros and move them down the line a few years."

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u/yeehah Nov 13 '21

This artist's style really reminds me of Bill Watterson. I can see Calvin doing the same finger guns.

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u/lessmiserables Nov 13 '21

None of this is how it works.

Yeah, it's a valid strategy in narrow circumstances, but it is hard to actually avoid taxes this way. Not only will they eventually pay those taxes at some point, this only works when their assets go up. If it goes down, they not only have to liquidate to pay it off, they then pay even more taxes on that.

It is risky for everyone involved, which is often why its just not super viable.

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u/keystone66 Nov 13 '21

And yet here we are.

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u/RapeMeToo Nov 13 '21

Y'all act like you're not paying as little taxes as possible too

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u/GrimReader710 Nov 13 '21

Was so happy when I heard we were sending billionaires to space... then I found out they were bringing them back.

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u/CalamariAce Nov 13 '21

This is a recent phenomena only made possible by the Fed setting artificially low interest rates. Let the market set interest rates and this problem goes away.

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u/denjin Nov 13 '21

Good one. Almost had me there.

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u/CalamariAce Nov 13 '21

Just look at the data. This type of thing rarely happened 20+ years ago. The lower interest rates are, the more we've seen it happen.

Otherwise you'd have to believe that we had upstanding rich people 20+ years ago with strong morals who wouldn't have dreamed of taking advantage of the system in this way? Please.

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u/denjin Nov 13 '21

What data? Are you suggesting there weren't billionaires exploiting loopholes to hoard wealth in the 90s?

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u/CalamariAce Nov 13 '21

It was meant as a rhetorical question. Asked a different way: Why do you suppose this is only just now becoming a big issue? Why wasn't this happening 20+ years ago?

The two possibilities are: 1) Something has changed in the last 20 years that make this behavior possible, and we should make an honest attempt to understand what that is. Or 2) The billionaire class were either too stupid or too morally righteous to take advantage of this loophole in the past.

Clearly neither of us believes it's #2, which leaves us with #1. And the most important factor in determining the attractiveness of borrowing against your assets is the interest rate, which has declined to historic lows during this time. If you can get a loan for 1% and get a 10x average return in the S&P 500 (10%), then it's a no-brainer: you're going to do it.

So why are interest rates artificially low in the US? Enter the Fed. We have a so-called "free market", except in the most important way: Who gets to set the price of money? We don't have a free market that determines this. Instead, we have central planners (i.e. the Fed) who decide what this should be.

This is the same Fed who maintained that "Subprime was contained" as the economy started collapsing around them in 2008. This is the same Fed who maintained that inflation would be "transitory", yet we are seeing 30-year highs in the latest CPI report last week. These are the people we are letting decide our economic fate.

While the Fed is supposed to be independent, the pandemic has dispelled any lingering notions that this might be true. They are very much subject to political pressure, with presidents and congressman dictating to the Fed chair the easy-money policies they expect.

In other words: Congress tells the Fed to keep interest rates low so they can score political points by promising "free stuff" to their constituents which can only be paid for by deficit spending, which is only possible if the interest rates on those payments are very low. (This is the same reason you can afford a much larger house when interest rates are 2% rather than 10%: More of your money goes to the principal, less goes to interest. The same applies to government spending.)

But nobody wants to actually balance the budget, or make the hard decisions that X is more important over Y in the budget, so Y will be taken out. It's much easier for the Left to agree to fund the pipe dreams of the Right (e.g. military spending), and the Right to fund the pipe dreams of the Left (e.g. social programs).

So of course the real solution to this problem is one that nobody wants to hear: The country has to live within its means, actually run a balanced budget, and begin to pay down the debt. Then interest rates can rise to normal levels again, and it will no longer be profitable for billionaires to take out cheap loans against the value of their assets to avoid taxes.

Or we can ignore the real problems and just blame the Evil Rich people, who do the same thing you would do if you were in their shoes.

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u/DaveKellett SHELDON Nov 13 '21

Provided my Amazon-hosted sites don't suddenly go down, here's the source: http://www.sheldoncomics.com/archive/211112.html

:)

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u/Mister_Bishop Nov 13 '21

I love Arthur the duck. He's my favorite character.

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u/Fyrefrog25 Nov 13 '21

Thank you, Mr. Kellett, for the gift that is Sheldon Comics. It is smart, funny, sweet, and simply gives me the warm fuzzies.

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u/TwinkleMcFabulous Nov 13 '21

But how do they pay back the loan with the loan money?! That's fucked!

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u/Alkanfel Nov 13 '21

They take out another one, because their portfolio is presumably worth more now than it was X months ago, as long as the economy continues to grow. It's honestly a pretty clever strategy, but you don't need billions in stock to take out a portfolio-backed loan.

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u/Local64bithero Nov 13 '21

So if the economy tanks, they lose money and can't pay back the loan? What happens then?

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u/Scythul Nov 13 '21

Even a 100M dollar loan is less than a percent of Musks net worth. He takes out a 100M loan this year and then 150M loan from somewhere else next year. He pays back the first loan and lives off the extra. Rinse and repeat for the next 50 years and he would be taking out a loan when he’s 100 years old for 2.5 billion. Still less than 1% of his total net worth right now.

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u/TyrialFrost Nov 13 '21

from somewhere else next year

no need, banks facilitate rolling one loan into the next for these types of clients.

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u/Relyt81 Nov 13 '21 edited Nov 13 '21

Wouldn’t you pay less taxes if you could? They are simply using a loophole that the government allows.

The bank liquidates their collateral to cover the loan if the value of that collateral drops.

Edit: It would have to be a significant drop to cause a liquidation; 50% or more. Because the bank would only lend about half the value of the collateralized assets.

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u/Targetshopper4000 Nov 13 '21

Sounds like a margin call?

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u/Relyt81 Nov 13 '21 edited Nov 13 '21

Yes it is like a margin call.

This type of loan is called a pledged asset line. Interest rates on PAL loans can be extremely low. The purpose of this type of loan is to "defer until you die".

As long as the value of the assets appreciate faster than the loan principle compounds, the borrower never has to cover the loan or make payments. They can increase their credit line in tandem with asset value growth.

When the borrower dies the note will be called due and assets are liquidated to cover.

I believe at this point only estate taxes are due, not capital gains. So the borrower has effectively accessed their capital gains without ever paying the taxes.

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u/IamLordMilk Nov 13 '21

Their uncle sam bails them out and you and I get to foot the bill

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u/Alkanfel Nov 13 '21

They get fucked.

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u/[deleted] Nov 13 '21

Here is a detailed Forbes article on how this works.

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u/clearedtoland22 Nov 13 '21

Mark Beaks: Pew! Pew!

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u/Alxorange Nov 13 '21

I love that the artist captured Bezos’ wonky eye as well.

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u/adviceKiwi Nov 13 '21

Scummy motherfucker

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u/Midas_Artflower Nov 13 '21

Serious question: Why isn’t this on r/AwfulEverything where it belongs?

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u/citznfish Nov 13 '21

TIL how the rich cheat taxes. This was a very simple explanation.

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u/A_lmir Nov 13 '21 edited Nov 13 '21

There really aren't all that many billionaires, so what if they don't pay taxes? It's not like it makes any difference... /s

EDIT: Ah, yes, reddit, a place where no one can take a joke even with an /s to indicate sarcasam. Ironic that this mostly happens on r/funny

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u/Standard-Ad-712 Nov 13 '21

They didnt just start as billionaires magically! They learned how the tax system is built to work and used it!

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u/Try-the-Purple-Pill Nov 13 '21

Evil rich people. How dare they keep the money they earned by taking advantage of legal financial tools available to everyone.

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u/Octomyde Nov 13 '21

The problem is not the rich people. The problem is the system that allows them to do that.

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u/Amidus Nov 13 '21

If they money is used like an income it should be taxed like an income.

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u/calthopian Nov 13 '21

Should you have to pay income tax on a mortgage?

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u/keystone66 Nov 13 '21

If the asset is used in lieu of income to generate liquidity, it should be taxed as income.

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u/typo9292 Nov 13 '21

Musk just paid over $1B in taxes, this week so …. Go google it and then explain how they aren’t paying taxes.

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u/rikccarrd Nov 13 '21

How many billion is he/his company worth? Just one billion?

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u/Zammyboobs Nov 13 '21

this actually just explained everything i’ve ever wondered regarding taxes and billionaires. thanks

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u/ChadMcRad Nov 13 '21

I really hope this isn't your only explanation

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u/TheAdventOfTruth Nov 13 '21

At the risk of pausing everyone off, so what if they pay few taxes. We should be mad at the government, not the billionaires. Wouldn’t you pay less taxes if you could? They are simply using a loophole that the government allows.

Along with that, complaining about them being smart with their money sounds a lot like a kid crying, “That’s not fair.” Life isn’t fair, get over it. Or work to become a billionaire and then do what they do.

Here come the downvotes.

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u/percolator3000 Nov 13 '21

Legal ≠ ethical

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u/TrooWizard Nov 13 '21

Please explain your thoughts on the solid impenetrable wall between billionaires and "the government" that you seem to think exists.

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u/evilsupergenius Nov 13 '21

The government allows it because they were bribed to put it into practice.

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u/Tango-Actual90 Nov 13 '21 edited Nov 13 '21

So the officials we elected to be moral and righteous representatives of the people took bribes that fucked over the average citizen and you still don't think they're the main ones to blame?

This is by and far a problem the government caused and they deserve the brunt of the criticism.

EDIT: The fact my statement is downvoted just shows the sad state of this site

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u/torn-ainbow Nov 13 '21

Political bribery is quite legal in the USA. They call it lobbying.

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u/Tango-Actual90 Nov 13 '21

Still doesn't mean it's right

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u/Kiddo1029 Nov 13 '21

They pay less taxes because they designed it that way, not because it’s a loop hole that was unintended.

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u/IamLordMilk Nov 13 '21

-work hard -become a billionaire

Don't you have a kids birthday to be at?

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u/throwaway8u3sH0 Nov 13 '21

You're right in one sense and wrong in another. Yes, the blame lies with the government (and ultimately, I would argue, with the people, who vastly outnumber billionaires.) However, it's hard to get mad at a nebulous "government." It's easier (and more visceral) to be like "Elon Musk could give everyone he employs a million in stock and still be the richest guy on the planet."

So I think these kinds of memes are "getting mad at the government," in a sense. It rallies people to a cause with something more tangible than a spreadsheet of numbers. (What would be more effective -- showing the statistics of car fatalities every week or picking one person who died tragically and doing an in-depth story on them?) And once everyone is good and mad, you point them towards their representatives phone lines.

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u/[deleted] Nov 13 '21

Lol, all billionaires became it because they were born in well off families got a nice education and a few dozen millions dollars minimum to start investing and not doing hard work as soon as they graduated.

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u/Molenium Nov 13 '21

We can be mad at both.

Both is good.

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u/yoi12321 Nov 13 '21

A lot of people ignoring the fact that stocks can go down. If billionaires pay themselves in stock, they have to pay income taxes on the market value of the stocks they acquire. If assets they already own go up in value, they only have to pay tax on the gain when it's realized. A lot of people analyzing loans talk about "but then the asset is worth a lot more" as if that's inevitable. But there's nothing stopping any average Joe from maxing out on Amazon or Tesla or whatever company stock. Then you won't pay taxes on it until you liquidate it. And if it's guaranteed to go up, why wouldn't you do that? If you own a home, take out a massive home equity loan and use it all to buy Amazon stocks? Just as billionaires get get low rates due to stocks as collateral, homeowners can get low rates due to their house as collateral. And the answer of course is that stocks can go down.

Also as mentioned, every dollar borrowed (plus interest) needs to be paid back in post-tax dollars. Maybe he keeps borrowing until he dies, but first off compound interest on loans would likely end up being more than taxes if it's taken out for multiple years, and again he doesn't even avoid the taxes at all, eventually his estate will pay taxes on it when he dies.

And of course the tax billionaires would pay is a rounding error in the US budget. Anyone obsessed with this is operating out of pure jealousy, not an actual desire to improve the lives of anyone.

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u/DeathBelowTheCinema Nov 13 '21

This shouldn’t be in funny but trashy because I don’t see how any reasonable person can see humor in this.

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u/astroturtle Nov 13 '21

We need a tax based on net worth, especially the year-over-year delta of net worth, instead of just straight income.

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u/JayTheFordMan Nov 13 '21

Yeah, problem is that net worth a effectively a paper value, its not a real value nor even useable value. It means nothing. Value/cash is only realised once sold.

In any case, best way to put this is if I said you had $100 cash in your account but you had shares valued at $100k, and I said you need to pay 15% of the value of those shares in tax. You will not have the cash to pay for that tax. You would then have to sell those shares to pay the tax. Net result will be the destruction of investment.

Only way to tax anything or anyone is to pay on what you actually have in cash, ergo income tax or GST

-9

u/ATXMark7012 Nov 13 '21

It's income tax, not net worth tax. Like everyone else who owns stock they don't pay any taxes on unrealized gains. Just like everyone else who takes out loans they don't pay income tax on cash proceeds from a loan. Very few people can actually live off rotating personal loans like this, but it isn't a different set of rules for them.

8

u/givemethebat1 Nov 13 '21

“The law, in its majestic equality, forbids all men to sleep under bridges, to beg in the streets and to steal bread — the rich as well as the poor.”

6

u/The_Countess Nov 13 '21

The rules don't have to be different for billionaires for them to exploit the rules in way others can't.

2

u/calthopian Nov 13 '21

Others can, it’s basically a HELOC, only most people don’t have enough value in their assets to get the creditworthiness to get a line of credit as large as a billionaire’s

3

u/[deleted] Nov 13 '21

Well no, and here is how this works and yes this is a privilege given only to the richest, even though this privilege allows them to contribute nothing to society and while taking it all. We provide the infrastructure on which they thrive, it's only fair they should pay for it.