[mox1]

The Reddit /accounts were talking about this earlier this week and I think most of them had a pretty reasonable take.

1. If one uses an asset as collateral for a loan (be it stock or whatever else), for tax purposes treat that asset as sold, then immediately repurchased at the same price.

2. From there all of the usual tax laws can apply.

So in theory this should get at the core of the actual problem, while avoiding at lot of the messiness of taxing un-realized gains.

It's not perfect, but I think it helps align incentives well. Whoever is lending the money probably wants to know the value of the collateral. Lender and borrower are now both incentivized to come up with the real value at the time of the loan.

[nightski]

So small business can't take out loans unless they can realize and be taxed on the full valuation of their company immediately? As much as I can appreciate the goal, this is absurd.

[bjornsing]

This is not about businesses taking out businesses loans. It’s about the owners of businesses using their shares as collateral for loans.

Most small business owners probably can’t even do this, because banks won’t accept their shares as collateral. So in a sense you could say this would even the playing field between big and small business.

[azulster]

why is everyone talking about small businesses when every proposal that's been published targets $100million + asset portfolios

[danaris]

Is a small business loan usually taken out with the entire company as collateral? Rather than just based on normal loan terms and risk?

(That sounds unlikely to me, but I know little enough about the intricacies of business finance that it could be true...)

[Gormo]

What is the goal here, actually?

[kgwgk]

Businesses =/= Businesses owners

[Ekaros]

Business can take loan if someone loans money to it. The owner of such business can't take loan against it and not treat it as capital gain.

[awongh]

Maybe it’s just a marketing problem then and it should be called asset collateral tax rather than unrealized gain tax, which on the face of it sounds kind of stupid.

[rich_sasha]

Interesting.

How does this interact with something trivial like remortgaging a house?

Say I bought a house for 100k, cash. Now it's worth 200k. I want to take another 50k mortgage on it. Do I realize cap gains on 25% of my house, i.e. an increase of value on 25k to 50k, and then I'm liable for cap gains on 25k? At 20% say, that's 5k tax. Unpleasant for sure, but doesn't seem out of proportion.

[voisin]

I believe it is only on unrealized gains over $100m.

[Spartan-S63]

Yeah, I agree with this take. I think making an issue of unrealized gains isn't the real story here. Using unrealized gains/assets as collateral is the way the ultra-wealthy avoid large swaths of income tax.

I see two reasonable paths forward for taxing using assets as collateral:

1. Treat it as a sale and repurchase (as you described) and transform capital gains into a progressive system 2. Treat the sale as earning income for purposes of using the traditional income tax brackets.

Either way, you don't get into a weird speculative tax gray area. Rather it's when the ultra wealthy want cash-on-hand that they incur some kind of income tax penalty. Maybe even put in a reasonable exemption ($25-100k/year) that doesn't trigger tax so that middle class households aren't hamstrung by this.

[opo]

>...Using unrealized gains/assets as collateral is the way the ultra-wealthy avoid large swaths of income tax.

There are many web sites that claim this, but are there any actual reliable stats on how many lifetime loans are being given out? It is common to make short terms based on using stocks, etc as collateral. But how common is it to have a lender be ok with either deferring interest for decades until the person dies or continually giving new loans out to cover the interest (on paper at least)? Doing a quick search, I have not found one stat on how many lifetime loans like this are actually being done. There is a treasury department page claiming that about 160 billion dollars in unrealized gains are not being taxed, but that isn't talking about stock being used as collateral, that is talking about simply the value of assets increasing - that is entirely different. (If unrealized nominal gains should be taxed, should decreases in the value of assets lead to a tax refund?)

According to this: https://finance.yahoo.com/news/jeff-bezos-sell-5-billion-185... Bezos has sold around $13.4 billion in stock in 2024. If he could easily avoid millions (maybe billions) of dollars of capital gains tax by this one simple technique, why wouldn't he have?

[cjbgkagh]

One of the reasons I think politics is ok with income tax being where it is, is that the wealthy can currently avoid most of it. The wealthy can bring their money to bear to influence politics again to both broaden the scope so that the tax is more universally disliked and to create another carve out for themselves. Or at the very least situate themselves to benefit from government largess so that new taxes funding new spending is a net benefit for them.

My main concern is that it puts the government in a position to greatly benefit from inflation, even more so than it does now, and inflation will be the hidden tax that hurts the poor.

[snapplebobapple]

That will cause quite a painful but interesting deleveraging, i like it.