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.
merc@sh.itjust.works 3 days ago
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.
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.
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.
merc@sh.itjust.works 2 days ago
Ok, what tax loopholes?
Meron35@lemmy.world 2 days ago
A basic one is negative gearing + trusts + cheap loans.
Negative gearing allows you to deduct/combine different income streams together to reduce your taxable income, and hence tax liability.
Traditionally used by middle/upper middle class to deduct mortgage interest payments and reduce their taxable income.
Rich(er) people combine this with trusts to distribute income/expenses among trust beneficiaries for something more tax advantageous. Usually this is someone like a spouse, child, or extended family member.
Add on the fact that rich people get cheaper loans, which often makes it cheaper to finance day to day life with loans, and only draw down (ie realise capital gains) after shuffling around incomes/expenses for a year.
Tax loopholes are basically legal ways to shift the timing and benefiary of income/expenses. There’s a bunch of other ones, like
NannerBanner@literature.cafe 2 days ago
Businesses. I’ve seen ‘the back end’ of an upper middle class family with a business, and the ways the mother (the tax genius of the scheme) moved money around and labeled various things as expenses for businesses was wild. None of it was illegal, it just was clearly not the intended purpose of the tax laws. One example I clearly remember was sticking five cattle on each of the properties they purchased, and all taxes just disappeared (went from thousands of dollars to just… dollars) due to agricultural exemptions. All of the cattle and their care suddenly became expenses, because the labor they hired to care for them was somehow completely deductible or expensable or however the law looked at it, which allowed them to shuffle money from another business to make it look negative…
and so on and so forth. I think they had more than four businesses that were legally separate (and incorporated, with the board being family members [and those family members are part of a trust that let even more shenanigans happen]) but supported the way money was shuffled. This was for a family that, at most, made ~ $500,000. Super high, above that 1% mark, but not even close to the insanity that the truly wealthy can pull off. Anything business related opens up an exponential number of ways to move money, even while using it, compared to the options a casual income-only tax-payer has.
As much as we can point at ‘Trump, dumb’ and tell ourselves that the rich are stupid but lucky, the majority are not at his level. They hire (multiple) people making six figures to manage their money because that investment pays off.
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.