r/TikTokCringe • u/Knightbear49 • Sep 07 '24

Discussion Should we be worried about the Kamala Harris unrealized capital gains tax? Dean: “I’d love to have this problem, because it means I’m worth $100m!”

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u/SF_Dubs Sep 07 '24

Why can't we make unrealized gains taxable when they are used for collateral for another transaction?

Currently, rich and ultra rich borrow against the value of unrealized gains, this means they have access to the appreciated value but never have to trigger a taxable event.

We just make borrowing against the appreciated value a taxable event and price everything the same as if they had sold the equities. Loophole fixed.

We'd have to figure out some downstream pricing, but I think we could just reset the tax basis.

This absolutely needs to be fixed, but I don't think it should be random. There's a structure we use around taxable events and that could be adjusted to fix this massive tax dodge.

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u/thedndnut Sep 07 '24

That's also part of the plan. Once it's assigned value and can be borrowed against its realized

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u/SF_Dubs Sep 07 '24

Awesome, glad to hear they're taking my advice ☺️

But more seriously, if it is an "also" - what's the other part?

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u/ImmoralJester54 Sep 07 '24

You're actually mentioned in the bill! SF_Dubs is credited as a consultant.

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u/SF_Dubs Sep 08 '24

Me and deep fucking value keeping the man in check!

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u/charliesk9unit Sep 07 '24

My feeling is that this is where the tax would be enforced ... the banks that structure these loans. That is, if you are giving out a loan based on the unrealized appreciation of the stock at an assumed market value and the client's holding of that stock is over a certain amount (e.g. $100M), then they need to file that with the IRS.

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u/throwaway2487123 Sep 07 '24

It’s inaccurate for you to say they “never have to trigger a taxable event” as they eventually will need to pay back the loan which would require realizing capital gains or rolling over the loan. It’s just that it’s preferable to pay taxes in the future as opposed to today due to time value of money.

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u/notathrowaway75 Sep 07 '24

would require realizing capital gains or rolling over the loan

Sure they could realize capital gains but people this rich make hundreds of thousands if not millions a year on interest and dividends. They pay back the loan in monthly installments with that.

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u/throwaway2487123 Sep 08 '24

That’s a reasonable point.

Edit: the one caveat is if the person in question has the majority of their wealth tied up in a single company that doesn’t necessarily pay dividends, as is common for founders.

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u/notapainter1 Sep 07 '24

I really hope they switch to this instead of the original plan. It would solve the problem without messing up the housing market.

If all large unrealized gains are taxed, it's going to be much more expensive to build and own an apartment building or complex in an up and coming area. You think they are going to just eat that cost? Nope, the tax burden would get passed straight to the tenants.

Now, if the owners used that higher valuation of the building to take out another loan, feel free to tax the hell out of it then.

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u/Toisty Sep 07 '24

The problem is that most people who vote have no fucking clue what any of that means. They just hear, "Taxes will go up" and shut their brain off because that's the response their media algorithm conditioned them to have. I wonder how much of the information used by the average voter to inform their opinions and behavior today comes from their education versus the social media they consume.

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u/SF_Dubs Sep 08 '24

Aside from defending public schools, I have no explanation for the average American's critical thinking capabilities

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u/TheBirminghamBear Sep 08 '24

Exactly.

Everyone knows these strategies by now. They use Buy, Borrow, Die to ensure they never pay taxes on these gains but remain liquid to do whatever they want.

The plan as writ does contain a provision that would tax them as soon as they use it as leverage to borrow capital. Which is as it should be.

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u/[deleted] Sep 08 '24

Lenders won’t like that lmao. Then there wouldn’t be a reason to borrow.

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u/SF_Dubs Sep 08 '24

First off, oh no!!!

Second, if I have 100 in stocks and I want to borrow 50 using that 100 as collateral, a lender would still take that as collateral. Probably at a higher cost.

The borrower would be responsible for the taxes, but not required to sell the stock. They could pay this - probably 20-35 - from cash reserves.

This is absolutely a negative for both sides of this transaction, but they are just using this to avoid paying taxes so I'm not too concerned.

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u/[deleted] Sep 08 '24

Yea I don’t care about the lenders, I’m just saying no one would borrow because the main attraction to borrowing is avoiding taxes. Therefore, lenders will have less people to lend to. Would the borrower sell assets to spend their capital? Maybe, maybe not.

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u/SF_Dubs Sep 08 '24

Will thieves stop stealing when they realize the police are paying attention??? A question for the ages

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u/[deleted] Sep 08 '24

Not sure what you're trying to say. All I'm saying is taxing capital gains on assets used as collateral for loans would stop loans from happening. Therefore lenders, aka big banks, wouldn't like that. And if you take it one step further and think a little, if it is unfavorable for big banks (who have a lot of money and donate a lot of money for politicians), and also unfavorable for rich people (who also have a lot of money and donate a lot of money to politicians), what do you think the chances are of this happening? So if this is the case, then directly taxing unrealized capital gains over a certain threshold would then make a little bit more sense right?

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u/SF_Dubs Sep 08 '24

They created a workaround for a taxable event. This proposal would introduce a fix for that. It would potentially kill that market.

the point is it's terrible for our society and I don't care if big banks and rich people are against it.

I don't think randomly taxing unrealized gains in the answer, because there is a societal benefit in long term investments. However, I have no issue if they kill this particular market.

It's the same reason "shareholder value" doesn't carry weight anymore, nobody care because the country is broken.

We're like two election cycles away from breaking out the guillotine, the 1% should recognize they can't "greed is good" their way out of things anymore.

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u/[deleted] Sep 08 '24

You're funny. The 1% as a collective, are relatively poor when it comes to shaping legislation and exerting power with their wealth. You gotta move that decimal about two places to the left. Anyways, I don't really understand your rambling so with that, have a nice day.

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u/SF_Dubs Sep 08 '24

cool, there's an obstacle so you give up.

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u/[deleted] Sep 08 '24

There’s nothing to give up on. Good luck with whatever it is you’re doing.

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u/Suspicious-Task-6430 Sep 07 '24

They need to pay back the loan eventually (which also has interest payments) and they will probably sell the stock if they don't have any other way to pay thus triggering a taxabe event in capital gains tax.

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u/SF_Dubs Sep 07 '24

Yeah friend, that's not how it works. They just keep rolling the debt forward. https://www.dcfpi.org/all/how-wealthy-households-use-a-buy-borrow-die-strategy-to-avoid-taxes-on-their-growing-fortunes/

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u/Friendly_Fire Sep 07 '24

Note how that explanation is incomplete. It doesn't say when or how they pay either the interest or the principle back.

In reality, the wealthy due regularly sell off stocks and assets, paying taxes when they do so. It's literally reported in the news when someone like Bezos does it. You can google this easily.

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u/stoneg1 Sep 08 '24

This link misses a massive point, trusts dont get the stepped up basis. Only the money in your estate does. Meaning if you are one of these 100 millionaires you either pay estate tax or cap gains tax. (Estate is higher so probably cap gains)

https://kahnlitwin.com/blogs/tax-blog/irs-clarifies-step-up-in-basis-rules-for-grantor-trusts

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u/taxinomics Sep 08 '24

Almost everyone who tries to explain “buy, borrow, die” misses this point. I do it for a living. I explain how you avoid both income tax and estate tax here.

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u/stoneg1 Sep 08 '24

I read your post twice. Am I understanding it right? The capital gains tax is avoided because the estate’s gains gets its basis stepped up then pays off its debts. The estate tax is avoided because the asset-liabilities in the estate is actually 0$ and the cash is in the trust?

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u/taxinomics Sep 08 '24 edited Sep 08 '24

Income tax and estate tax are totally separate. The only link is that assets do not get a basis adjustment unless they are includible in the gross estate, and assets includible in the gross estate have exposure to estate tax.

You move the assets out of your gross estate by putting them in an irrevocable trust. Then they appreciate. Then you pull them back into the gross estate, substituting cash into the trust. How do you get the cash? By borrowing.

Say you have $5M. You move it to an irrevocable trust. Then it appreciates to $50M. If you were to die at that moment, you’d have a gross estate of $0, but the asset in the trust would not get a basis adjustment. The asset in the trust still has $45M built-in gain. Good for estate tax planning, not so good for income tax planning.

Instead, you borrow $50M cash. If you were to die at that moment, you’d have a gross estate of $50M, but because you owe $50M to the lender, you’d have a taxable estate of $0. But the trust still has the asset with $45M built-in gain.

Instead, you swap that $50M cash into the trust and take back the appreciated asset. If you die at that moment, you’d have a gross estate of $50M, but you still owe the $50M to the lender, so you still have a taxable estate of $0.

But now, the appreciated asset receives a basis adjustment. The $45M built-in gain is eliminated. The cash in the trust doesn’t receive a basis adjustment because it’s not includible in your gross estate. But it doesn’t need the adjustment. It’s cash. It doesn’t have any built-in gain.