Cmon, we can describe this process to discuss why it’s wrong, we can’t codify it into law that if you borrow against unrealized gains for the purpose of providing yourself a liquid income, you’re realizing the gains and must pay a tax on it?
People don’t take out home equity loans to spend on groceries, maids, or yachts. They spend it on improving or repairing their home. The purpose is the asset.
People don’t take out home equity loans to spend on groceries, maids, or yachts. They spend it on improving or repairing their home.
Having worked in a financial institution for many years, I can tell you that this is not even close to universally true. It’s very common to use it as a debt consolidation strategy.
Even assuming this is always true, you’re essentially saying that they use the money from the loan against which their house is collateral, to do things that increase the value of the house. But borrowing using your shares in a company as collateral, in order to invest into that same company to increase its value, is essentially an identical ‘strategy’. You’re just arbitrarily deciding it’s bad for one illiquid asset to be used as collateral, but not another, even if the goal (increasing the value of the thing used as collateral) is identical.
But that’s just the thing - they’re not borrowing against their shares to improve the company. They’re using that as their income, and when the loans come due they just take out another one to pay off the first one. Infinite money glitch.
Pretending a loan is income and in turn taxing it as such, just because the ‘wrong thing’ was used as collateral, is nonsensically-arbitrary, I think.
Why not make a law against using unrealized capital gains as loan collateral? Or just force ‘realization’ of the capital at loan time, and they can pay the taxes on that. A home equity loan is against real property, so it wouldn’t be subject to the same issue.
Why not make a law against using unrealized capital gains as loan collateral?
Because that would outlaw home equity loans, for one thing. Anything you own that’s increased in value since you started owning it is “unrealized capital gains” by definition, until/unless you sell it, not just stocks.
The fact is, taking a loan out using stuff you own as collateral, regardless of what it is, is a perfectly normal thing to do that in itself deprives no one of anything. Lenders aren’t in the business of throwing money out the window—they make these loans because they get repaid, and then some. Someone who takes out a home equity loan and uses the money to renovate their house so that it’ll sell for an increased price beyond the loan amount + the interest rate, is making the exact same ‘move’ as someone who takes a loan out using their stock in a company as collateral, and uses that money to do things that make that stock increase in value beyond the loan amount + the interest rate.
Not the previous poster, but you’re of correct of course. The issue is that when multi-billionaires can get loans at nearly 0% because if their ridiculous “unrealized” wealth and then claim “nope, no income here” despite their “unrealized” wealth increasing significantly, there is clearly a big problem and needs a solutions.
I am sure there could be some nuance used in any restrictions against said loans or tax against said weath. Someone before used a “$50 million” value as a good starting point, and at first glance that seems reasonable. Hell, you could easily make that number ten times higher and still cover most of the worst offenders. As long as there is an upper ceiling that stops these wanna be wealth hoarding dragons it’s a good start.
Loans aren’t income. They only reason this ‘move’ works at all is because they are creating value at a rate that exceeds the interest rate + inflation. Other than the scale of the ‘tactic’, it’s no different from taking a home equity loan to improve your home so that the amount it sells for has increased by more than was lost from the interest on/repayment of the loan.
Realize that the lenders giving these ultra-wealthy these loans are not in the business of throwing their money out the window for fun. They make these loans only because they get repaid, with enough interest to make being without those funds in the meantime worth it for them.
Then the stocks used as collateral should be taxed as realized gains.
Since we’re talking about changes to the tax code, we could make it so that it only applies to loans over some arbitrary amount, say 10x the median yearly income of the bottom 50% of earners (within a certain time period to counter multiple smaller loans as loopholes).
Then the stocks used as collateral should be taxed as realized gains.
Why? They haven’t been realized. Literally nothing happens to collateral unless the loan is defaulted on. Do you think you should your house should be treated as realized gains (i.e. the same as if you sold it), if you take out a home equity loan?
we could make it so that it only applies to loans over some arbitrary amount…(within a certain time period to counter multiple smaller loans as loopholes)
This is literally impossible to realistically enforce, total waste of resources and effort to even try. Myriad ways to spread it out over different people/entities/etc.
But loans aren’t income. You have to pay them back.
Pretending a loan is income and in turn taxing it as such, just because the ‘wrong thing’ was used as collateral, is nonsensically-arbitrary, I think.
P.S. Home equity loans are also ‘loans against non-liquid assets’.
Cmon, we can describe this process to discuss why it’s wrong, we can’t codify it into law that if you borrow against unrealized gains for the purpose of providing yourself a liquid income, you’re realizing the gains and must pay a tax on it?
People don’t take out home equity loans to spend on groceries, maids, or yachts. They spend it on improving or repairing their home. The purpose is the asset.
But that’s just the thing - they’re not borrowing against their shares to improve the company. They’re using that as their income, and when the loans come due they just take out another one to pay off the first one. Infinite money glitch.
Why not make a law against using unrealized capital gains as loan collateral? Or just force ‘realization’ of the capital at loan time, and they can pay the taxes on that. A home equity loan is against real property, so it wouldn’t be subject to the same issue.
Because that would outlaw home equity loans, for one thing. Anything you own that’s increased in value since you started owning it is “unrealized capital gains” by definition, until/unless you sell it, not just stocks.
The fact is, taking a loan out using stuff you own as collateral, regardless of what it is, is a perfectly normal thing to do that in itself deprives no one of anything. Lenders aren’t in the business of throwing money out the window—they make these loans because they get repaid, and then some. Someone who takes out a home equity loan and uses the money to renovate their house so that it’ll sell for an increased price beyond the loan amount + the interest rate, is making the exact same ‘move’ as someone who takes a loan out using their stock in a company as collateral, and uses that money to do things that make that stock increase in value beyond the loan amount + the interest rate.
Not the previous poster, but you’re of correct of course. The issue is that when multi-billionaires can get loans at nearly 0% because if their ridiculous “unrealized” wealth and then claim “nope, no income here” despite their “unrealized” wealth increasing significantly, there is clearly a big problem and needs a solutions.
I am sure there could be some nuance used in any restrictions against said loans or tax against said weath. Someone before used a “$50 million” value as a good starting point, and at first glance that seems reasonable. Hell, you could easily make that number ten times higher and still cover most of the worst offenders. As long as there is an upper ceiling that stops these wanna be wealth hoarding dragons it’s a good start.
Fair enough, but if you want to start taxing the ultra wealthy, you have to start somewhere. Those loans are their main source of income.
Loans aren’t income. They only reason this ‘move’ works at all is because they are creating value at a rate that exceeds the interest rate + inflation. Other than the scale of the ‘tactic’, it’s no different from taking a home equity loan to improve your home so that the amount it sells for has increased by more than was lost from the interest on/repayment of the loan.
Realize that the lenders giving these ultra-wealthy these loans are not in the business of throwing their money out the window for fun. They make these loans only because they get repaid, with enough interest to make being without those funds in the meantime worth it for them.
Then the stocks used as collateral should be taxed as realized gains.
Since we’re talking about changes to the tax code, we could make it so that it only applies to loans over some arbitrary amount, say 10x the median yearly income of the bottom 50% of earners (within a certain time period to counter multiple smaller loans as loopholes).
Why? They haven’t been realized. Literally nothing happens to collateral unless the loan is defaulted on. Do you think you should your house should be treated as realized gains (i.e. the same as if you sold it), if you take out a home equity loan?
This is literally impossible to realistically enforce, total waste of resources and effort to even try. Myriad ways to spread it out over different people/entities/etc.