Comment on Borrowing money against their stuff to get more stuff to borrow money...

Arghblarg@lemmy.ca ⁨3⁩ ⁨days⁩ ago

• damnedfurry@lemmy.world ⁨3⁩ ⁨days⁩ ago

  This is basically urban legend at this point; “buy borrow die” is a tiny piece of the ultra-wealthy’s financial strategy, at least when it comes to the “borrow” part, which is what everyone’s focused on:

  • In reality, the ultra wealthy do not borrow against a large fraction of their unsold gains. On average from 2004 to 2022, the top 1% of wealth-holders only borrowed 1-2% of their annual economic income.

  • Borrowing while holding unrealized gains is, in fact, more of a middle-class activity than an ultra-wealthy one: Americans in the 50-90th percentiles borrowed 42% of their unrealized gains in 2022, compared to just 4% for the top 1% of wealth-holders.

  • The primary tax avoidance strategy for the top 1% is not to borrow, but simply not to sell appreciated assets.

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  • merc@sh.itjust.works ⁨3⁩ ⁨days⁩ ago

    On average from 2004 to 2022, the top 1% of wealth-holders only borrowed 1-2% of their annual economic income

    What’s confusing to me is that there must be a reason they’re borrowing. When you borrow, you have to pay interest. If you’re someone who has a lot of money, why would you pay someone to lend you money? I guess the only thing that makes sense is that they think that whatever makes them rich, say Amazon shares or something, will go up at a rate that beats the interest rate they have to pay for the loan. OTOH, I guess they’re not so sure of that that they borrow in order to buy even more Amazon shares.

    The primary tax avoidance strategy for the top 1% is not to borrow, but simply not to sell appreciated assets

    I assume this means “not to sell all of their appreciated assets”, because they do spend a lot of money and it has to come from somewhere.

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    • fodor@lemmy.zip ⁨3⁩ ⁨days⁩ ago

      The reason the rich borrow money is to take advantage of tax loopholes. It’s not about being reasonable or what ought to make sense. They are gaming the system, that’s it. So, how does it work?

      If they have investments in the stock market, then they get taxed when they sell those. So even though the investments are usually going up in value, they don’t want to sell too often. But they still need to buy things.

      So, where do they get money for living, houses, cars, travel, etc? If they get paid for working a job, their income is taxed a lot, meh. If they sell their stocks, they get taxed a little, meh. But if they get a low-interest loan, that money is not taxed.

      And you might say hey, money’s gotta be paid back some day. But remember, the goal is to find the loopholes, the places and times where either you don’t pay tax or you pay much less tax. And those loopholes are all over the place. In the end, the details are just boring. Most financial scams have just enough moving parts to look amazing, but if you take an hour to figure them out, it’s nothing exciting.

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      • merc@sh.itjust.works ⁨2⁩ ⁨days⁩ ago

        The reason the rich borrow money is to take advantage of tax loopholes

        Ok, what tax loopholes?

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      • 1984@lemmy.today ⁨2⁩ ⁨days⁩ ago

        I cant blame them, honestly. And I think 99.99% of poor people would use the same strategies if they could. This is not about being morally superior, its about finding ways to keep your money. And this is something everyone is interested in.

        Unfortunately only the rich can use this strategy in practice, but we all would if we could.

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  • Arghblarg@lemmy.ca ⁨3⁩ ⁨days⁩ ago

    Neat doc, thanks for linking. I find this part very sensible in light of what you brought up

    In most cases, the ultra wealthy don’t need to borrow, because their liquid, taxable income—salaries, business income, and capital gains—is significantly higher than their annual consumption.

    That makes sense… I mean once you’re somehow generating millions or more every year in income, no need to borrow at all really. It’s making it to that upper tier of income vs. expenses that few reach.

    Tax the Rich, the Old Fashioned Way: Raise Rates

    That’s the key thing.

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