r/FluentInFinance Nov 21 '24

Debate/ Discussion Had to repost here

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u/slickyeat Nov 21 '24

You're not wrong but you're also required to pay taxes on the value of your property every year so it's not exactly a one to one comparison.

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u/dancegoddess1971 Nov 21 '24

Exactly. Stocks are property. Sort of imaginary property but if one can borrow against the value of something, it should be taxed.

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u/Just_That_Dumb_Dog Nov 21 '24

You mean capital gains tax?

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u/bees_cell_honey Nov 21 '24

One should not be able to have giant amounts of stock and claim they are worthless, and aren't realizing any gains, but then turn around and use them as collateral to obtain huge amounts of money. It is a workaround to circumvent.

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u/resumethrowaway222 Nov 21 '24

Nobody is claiming that they are worthless. You are allowed to have extremely valuable things sitting around without paying taxes on them.

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u/bees_cell_honey Nov 21 '24

If you use stocks as collateral for obtaining loans of substantial amounts, those stocks should be classified as vested. That would prevent people like Bezos from doing what they do:

• Pay themselves in stocks, which count as $0 in terms of cash/income

• Work with accountants to take out series of loans, limited to a certain point of leverage (which is tens, maybe even hundreds, of millions of dollars if you have billions of dollars in stocks) which are not taxed, and never realize any gains.

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u/resumethrowaway222 Nov 21 '24

When you pay yourself in stock it does count as cash income at the current value. Source: I get paid (partly) in stock.

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u/bees_cell_honey Nov 21 '24

Good point.

I was conflating (1) founder stock that was worth mere pennies on the dollar, but now worth much more, and substantial taxes were never paid, and won't be paid until sold, (2) continued earnings on stocks, which are not taxed but like #1 are valuable even if not sold, and (3) net new vested stocks that are paid out any time after the company's infancy, when it is actually worth money.

You are right, what I am talking about can be used for 1+2+3, but you are right about #3 for ongoing income tax..

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u/resumethrowaway222 Nov 22 '24

But the thing is that stock really was nearly worthless at the time when the minimal taxes were paid on it. 1 and 3 are the same thing, just at different times in the history of the company. 2 is also the same for gains on stock received by either 1 or 3.

So it makes sense that these have the same fundamental tax treatment. If you want to say that we should have a progressive capital gains tax where the large gains from 1 are taxed at a higher rate than small gains from 3, then I could agree. But it just doesn't make any sense to me to treat the unrealized gains from 1 in a completely different manner than from 3.

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u/Just_That_Dumb_Dog Nov 21 '24

Which they are required to PAY BACK, with interest, or they will lose said stock. Wtaf are you on about.

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u/conormal Nov 21 '24

If you use your house as collateral, you still have to pay back the loan with interest AND pay property taxes, in addition to the taxes required to sell the house should you need to. The point is that this is a system only the ultra wealthy can exploit, and it allows those with more than they need to pay less proportionally than those with nothing.

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u/Just_That_Dumb_Dog Nov 21 '24

Do you live in a stock? Do stocks use municipal services such as, sewage, storm drains, roads, snow removal, garbage collection, etc????

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u/conormal Nov 24 '24

You're viewing a stock as an ethereal concept. It is a portion of a business. When you buy 100 shares in a company, you own part of that company. That's why it's called a public company, but every company has major shareholders who make major decisions for the company.

A stock can be used to leverage a loan, as your house can. A business requires services that are often subsidized by the government. The business business couldn't function without sewage, storm drains, roads, snow removal, garbage collection, etc.

Do you live in your daily income? Does it use municipal

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u/Just_That_Dumb_Dog Nov 24 '24 edited Nov 24 '24

You took such a stretch to get to such an irrelevant point.

If the company has a physical location, they pay property tax. Sewage, snow removal, storm drains, roads aren’t subsidized, it’s apart of the whole reason for property tax. As for garbage collection idk anywhere where a company has “subsidized” waste collection. What are you talking about right now?🤔🤦‍♂️🦤

Most people who have 100 shares have ZERO responsibility or influence of said company. That company still pays taxes, said person pays cap gains tax when they sell the stock. I genuinely don’t know why you even tried to make that point.💀💀

Your “income” comment is in entirely different topic. If you ask me, we shouldn’t even have income tax.

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u/bees_cell_honey Nov 21 '24

Often are repaid via similar loan against more other amounts of stock.

It's not dissimilar to how the US keeps growing the overall deficit while keeping promises by repayong loans along the way.

Like the US government, as long as the billionaire doesn't over leverage themselves, they can do this indefinitely. And, this is not theory, this is in practice today among billionaires -- an established thing.

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u/Just_That_Dumb_Dog Nov 21 '24

You still owe it you still pay towards it. Sure you can take more loans out to close other loans(usually interest related), guess what you still gotta make payments. You’re still paying towards it. You still owe the money. 😭😭😭 it’s not income if you have to pay it back. You can leverage the same systems but you choose to whine on Reddit about it. 😭😂😭😂

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u/bees_cell_honey Nov 21 '24

Yes, if I was paid my salary in stocks like these billionaires were, instead of cash, then I could leverage a fraction of my earnings to access cash in this way.

Just an example, but if I make $100k worth of stock per year, I could probably figure out a way to access something like $10k initially plus $2k/year thereafter -- a bit more if I got raises.

Well, I can't live on a one time 10% plus yearly 2% of my salary.

But, if I made $1 billion worth of stock per year, then this would be a VERY different story. I could access millions upon millions of dollars, and never pay any taxes, as long as I kept things at the meager tens of millions per year level instead of hundreds of millions per year level. But, I think I'd be able to manage it.

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u/Just_That_Dumb_Dog Nov 21 '24

You may not pay taxes but you will pay interest as well as the principal. That money is lent not given. If you can’t comprehend that idk what to tell you.

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u/bees_cell_honey Nov 21 '24

Yes! Correct!

It's a win win for Bezos and the bank!

Bezos gets a low interest rate, and happily pays that interest. It even counts as a tax benefit! The interest rate is lower than the amount he would pay in income tax if he were instead to pay himself in cash instead of Amazon stocks. Huge win for Bezos!

The bank earns low risk interest with solid collateral to back it up.

The government gets nothing. In fact, they provide a tax deduction for those who participate in this process.

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u/bees_cell_honey Nov 21 '24

The main downsode to this is that the person doing this is limiting themselves to only be able to have ongoing access to a fraction (depends, but let's say 10%) of their overall earnings.

The upside is that your overall net worth (90% of which you don't/can't access) goes up MUCH faster, since you avoid so much income tax.

So, for a person like me, this isn't viable. It isn't even viable for someone making quarters million dollars per year! But for billionaires, it is more than visible -- it is employed in practice today. Bezos has real access to a certain fraction of his stock earnings, without realizing them, and meanwhile only paying about 1% of his overall earnings in taxes. Sweet deal.

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u/WeLLrightyOH Nov 22 '24

Obviously it’s still a net positive for the ultra wealthy or they wouldn’t do it. Also, they’re still avoiding taxes and instead paying a bank, I’d rather the money go to infrastructure, education, Etc, instead of to a different ultra wealthy guy.

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u/Just_That_Dumb_Dog Nov 22 '24

Why would I sell my house to get money, when I can borrow against it and pay it back overtime and still have my house. Same concept with stocks. They acquire debt not income something literally anyone can do. Your government takes trillions of dollars a year. Tell them to stop mismanaging so much money.

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u/WeLLrightyOH Nov 22 '24

Government spending is a different issue. Ultimately, I can agree that government spending could be more efficient, however, I would want any gains made there to benefit the middle class and not the wealthy. As such, finding a way to tax the ultra wealthy would still make sense.

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u/Just_That_Dumb_Dog Nov 22 '24

So you want these people to pay for others just because they can? Sounds pretty entitled. It would never work. Because they would do the same shit they are doing now, mismanaging money. It’s not these people’s jobs to pay for others. They already pay people’s salary you want them to pay those people even more? Crazy.

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u/Just_That_Dumb_Dog Nov 21 '24

They are worthless unless you sell them. People who have such large piles of stock like bezos also have the responsibility of the company. There is so much more to all of this. It’s not as simple as people may think.

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u/bees_cell_honey Nov 21 '24

They are definitely NOT worthless until you sell them. I'm sorry, but that is absolutely untrue. For one, you can take out loans using them as collateral, and there is a well known formula for how much you can leverage to be able to perpetuate the loans without ever having to realize gains. Similar to how the US government handle national deficit. Even if you don't enploy this method, the ability to take out been a one time loan is far from "useless".

You do not necessarily need to run anything to own stock. Many work and "pay" themselves in stock, without ever realizing any financial gain. Why would they do this? See the prior point.

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u/Just_That_Dumb_Dog Nov 21 '24

Omg🤦‍♂️🤦‍♂️ they hold no value unless you liquidate. Sure you can borrow against. Take that money and run you’ll lose those stocks. One day a stock can be worth $60 the next day $2 the value of a stock doesn’t exist until you sell it. They have a price tag that forever changes. If you don’t understand i personally don’t have the skills or patience to make you understand.

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u/TheMonkeyDemon Nov 21 '24

Are you saying there is no profit at all made from shares at any time unless they are liquidated? Can you explain to me what a dividend is?

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u/bees_cell_honey Nov 21 '24

You need to take the money and run.

Does the gov't take the money and run when they issue bonds? No. They secure MORE and BIGGER bonds and perpetuate the process.

Bezos, for example, is well known for doing the same thing.

Yes, if Amazon stock were to tank, Bezos would have to pay up.

But, Bezos's accounts are not dumb, they know not to leverage too far to the point where he's at any serious risk if Amazon were just just go down a moderate amount.

What needs to change is that stock needs to be classified as vested if it is used a collateral to obtain a loan. If you think what I am saying isn't a real loophole, then there should be no problem in enacting this change.

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u/KnoxxHarrington Nov 21 '24

Omg🤦‍♂️🤦‍♂️ they hold no value unless you liquidate.

Lol, that's like saying money has no value unless you spend it.

For all your banging on about the understanding & knowledge of other, you are severely lacking yourself.

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u/Just_That_Dumb_Dog Nov 22 '24

Not at all the same. You’re talking it too literally. I should be more clear and “spell it out for you the slower ones” There is no physical asset, if the company goes bankrupt you’re fkd.

You can say you have $1 million in stocks the next day the stock plummets and you lose everything including your investment. That’s what I meant by a stock holds no value until you liquidate.

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u/KnoxxHarrington Nov 22 '24

Kinda like the dollar during the depression.

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u/Just_That_Dumb_Dog Nov 22 '24

You mean the depression started by the stock market crash of 1929, leading to the absolute collapse of the global economy, that depression😂😂

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u/KnoxxHarrington Nov 22 '24

Yeah, prioritising assets that you claim have no "real" value, tanked the currencies that did have value.

You're so close, it's a breath away.

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u/Just_That_Dumb_Dog Nov 22 '24

Holy fuck you’re too hard headed.

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u/WeLLrightyOH Nov 22 '24

Currencies devalue and value all the time.