What about a tax such that you can only use assets as collateral for a loan if you've paid any outstanding capital gains on them? Would affect normal people through HELOCs but otherwise would mostly affect the very wealthy.
What about taxing lenders when they take loans against non physical collateral? i.e. something that's not a house, car or otherwise utilitarian infrastructure. Let them pass the tax on in rate hikes until it equals the capital gains tax. Just a spitball idea.
You could generate a lot of revenue via a rule (enforcement TBD) that requires people to establish a reasonable valuation on an asset before they can use the asset as collateral for a loan.
Then anyone who wanted material benefit off of their wealth would be required to pay taxes on it, rather than "benefit now, leave the gains to my estate".
Instead of taxing asset growth, they should tax the loan trick. For example Elon Musk uses loans taken out with stock as collateral, with no intention to ever pay them back - the banks are happy to take the collateral when the shareholder dies or something, because they're happy enough to put the debt on their books.
Or you could simply regulate loans made using stocks as collateral by either setting the minimum APR to say 20% or making the whole practice illegal.
Seems a lot easier than getting a new tax passed (loans are well regulated already) and won't harm the poor guy who is paper wealthy but can't actually sell his shares.
The only way I'd support something like this is if they limited it to taxing investments when they are used. If a person holds onto an inflated asset they shouldn't be penalized. If they use that asset as collateral for a loan then I think it's fair game.
That said, I'd like to see an analysis of what the financial system would look like if we applied that sort of logic to all asset classes and included various entities like corporations, trusts, etc., before I'm fully sold on it.
I really appreciate the desire to reign in the massive wealth inequality in the world today. I'm just wary of these sorts of 'hackish' approaches. I think of the law like I think of source code. It should be clear, consistent, analyzable, and come with a clear set of testable goals and intentions.
Would it tax loans? If not, how do you tax billionaires who never sell their stock and just get loans with their stock as collateral. How bezos pays minimal taxes without having realize gains by selling his stock.
Possibly: tax the interest on those loans at the bank. Possibly count such loans against assets (reducing banks' lending capability).
I'm not positive this works out, but:
- Banks tend to be well-established, identifiable entities.
- They are highly regulated and audited.
The question I'm not certain of the answer is what the result of such a tax would be. I suspect such loans would tend to be crowded out or inerest rates increased (raising costs to the billionaire utilising this cash-out option).
This seems to me along the lines of an HFT transaction tax, possibly operating similarly.
Let's first change the law to not let them borrow against their unrealized assets tax free. In fact the tax to get a loan should be higher then if you sold your shares at a company to discourage this crap. Or limit the total amount or forbid it outright.
Wouldn't it make sense to stipulate that loans taken against stocks are taxed in some form?
Average workers holding stocks then would not get taxed until they sell their stock.
Those borrowing against the value of stocks using the strategy you mention would be taxed at a specific rate while the loan exists.
Perhaps that's too difficult or affects average people as well. The other option as another poster points out is to remove tax deduction from specific assets or cap the deduction.
*and to treat loans against capital assets as taxable income. Otherwise we’ll keep seeing the wealthy avoid taxation by loaning against their assets. So long as rates stay relatively low.
I agree that forcing people to sell has its issues, but perhaps you could have a tax on loans of a certain size and/or not being able to deduct as much for the interest paid. Then nobody would be forced to sell, unless they wanted very large amounts of cash. I'm sure someone could find loopholes for those ideas as well.
I agree and would support changing the tax code so that using an asset as collateral triggers a tax event. Until then I don’t begrudge Musk’s accountants for doing what the system permits. Borrowing against unrealised gains is common accounting practice; almost certainly done by many wealthy politicians and nearly all super-wealthy people.
This is a good move. It'll raise tax revenues, hopefully reduce inequality, and potentially bring equities' valuations down to something more reasonable (and I say this as someone with a healthy stock portfolio).
How will it address people financing their spending with pledged asset line loans against their portfolios? Interest on that is tax deductible if the loan is used for an investment; which doesn't seem like a high barrier.
For liquid investments that have a well-agreed-upon market value, that wouldn't be a problem above a moderate wealth threshold. In particular, it should be easy to obtain credit against these securities (if necessary/desired) to pay the tax bill.
The loans would be very secure, since by definition they would have appreciated more than the taxes owing. And if the current offsetting-loss notions are retained (e.g. losses can be carried back to offset prior gains), if the securities fall in value then the taxes paid would be refunded, providing another way to repay the loan.
In the meantime, you'd avoid a current inefficiency of the tax system that encourages people to hold on to subpar or undesirable investments to avoid realizing taxable gains. The entire cottage industry of deciding which investments are "tax efficient" and should be held in taxable versus tax-sheltered accounts should go away.
the reasonable thing, would be to tax loans underwritten by securities as income. that loophole, of borrowing on stocks you own is pretty much giving a bazooka to sycophants or crooks who are prone to abusing it. look at adam neuman for example. otherwise, this so called bill is gonna punish the people it didn't intend to punish, while leaving the current beneficiaries of low wealth tax unharmed.
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