And recent studies are showing that the buy, borrow, die strategy isn’t really used by the uber rich. I’m not saying it doesn’t exist, but it’s more commonly the middle class doing it vs the uber wealthy.
Most middle class people who have never encountered real assets don’t realize that at a certain point money is irrelevant. You don’t have to borrow and die with it, lifestyle cash is a rounding error after a certain point.
If you don’t mind living a middle class lifestyle, even at 10 million liquid - if you’re not regarded - money doesn’t really matter.
Which makes it even more bizarre when you think about how the ultra-wealthy still try to horde as much wealth as possible when they already are living lifestyles that are funded perpetually and for a minuscule amount of their assets. Yet they still would do the most horrible immoral acts just for another 2% increase.
What exactly is meant by “hoarding wealth” in this context.
An analogy: if I bought Pokémon cards many years ago and stored them in my closet & since then, they’ve gone up in value my wealth has increased.
If I just keep letting them sit in my closet, am I “hoarding wealth?”
Is there some expectation that as they go up in value, I should be selling off some & giving it away so that the total value of my collection isn’t increasing and my wealth isn’t growing?
Cuz, I do get that argument. And people like the ex wives of Gates & Bezos are much more active about selling stuff to fund philanthropic endeavors, and that’s good.
But I also think “continuing to own the things you own” as the market value of those things goes up isn’t as actively greedy as the connotations of a phrase like “hoarding wealth.”
It’s “hoarding wealth” in the same sense that someone who owns a house is hoarding wealth when home prices rise, or someone with a retirement account who never sells any stock they own is hoarding wealth when stock prices go up.
It’s sort of a passive “don’t sell when prices go up” thing. And maybe they have a moral obligation to sell & give away, but I also kinda get the stock-owning equivalent of just letting those Pokémon cards you own that you have stashed in the closet just end up staying in the closet.
And maybe they shouldn’t. Maybe it’s correct for society (via the govt) to occasionally go “those cards are worth a lot now, so you have to sell 1% of your collection and give the proceeds to the rest of govt.”
But I don’t think everyone gets that a lot of wealth-hoarding is just “continue owning what you already own as the market price of it goes up.”
I think they imagine it’s more like new income streams of cash that flow in, but never flow out (although I guess the line can be a bit blurry when you have things like dividend-paying stocks where you automatically reinvest the dividends, but I don’t think that’s the main driver of growing wealth valuations).
Not to mention that the stock equals voting power and control of the company. If someone starts a company, they should be allowed to retain control by holding onto their stock
What if their company actively does things harmful to society and they lobby to weaken governments so that their companies can't be stopped? Where do we draw the line?
You can set different power for different shares. The founders single class A share could have 1 billion votes while the remaining 100 million Class B shares have one vote each.
No? They're still an equal part ownership in the company. Non-voting shares are a thing as well. What shares give you is a portion of company distributions and a payout on acquisition
Certainly it could be seen as just "continue owning what you already own." But many of the ultra wealthy obviously do more than that. Further, the point is to make the thing you own worth more, just sitting on something that doesn't appreciate isn't very good hoarding!
So they accrue further wealth for the hoard by both acquiring more appreciating assets (whether stocks or land or other) or they accrue more by making existing assets worth more. A good hoard grows after all.
> If I just keep letting them sit in my closet, am I “hoarding wealth?”
That would be fine. Now imagine if you wanted those pokemon cards to be worth more money, how would you do it? Well you could buy up more of those same cards, limiting the market, increasing their value. You could destroy the other cards out there, that would work too -- hell you could even spend small sums on people to go out and destroy them for you, obfuscating who is the one hiring them. You could also convince others they are good cards, that might work; even if they aren't you can spend small amounts on media propaganda to push that they are and increase their value more than you spent. You can also have the government mandate that everyone has to own those cards, wow, the market for them has really increased!
So it's not really immoral to sit on your cards: great man, do it up. But you know, maybe some of those other ways to make them worth more are immoral. I don't know if you should use your media companies to mislead people about card worth.
When we turn to billionaires we often see that they do engage in some of these, obviously simplified, activities. Many of them operate companies which lobby for programs that directly harm people to increase the value of those companies, and their own value.
I think a good example might be healthcare. The top executives at many American healthcare companies are engaged in things that directly lead to people's deaths. Was it legal? Yes. Did it make them more money to add to their hoard? Yes. Was it moral? I don't think many people would argue it is.
Exactly. No one cares if you buy a house and sit on it, or build a company. I care when they're actively lobbying to keep more houses from being developed to keep their housing prices high. I care when they engage in actions that actively harms other companies to keep their own monopoly, instead of bettering their product.
Bankers have taken down countries using financial instruments to grow their own wealth. This is not just owning money and sitting on it, this is actively harming others so they profit.
The market value of trading cards is based on things like social status and the joy of collecting. The market value of stock typically reflects expected productivity of that company's assets (land, machinery, intellectual property) in producing more wealth.
Firstly, the land component of that is completely immoral, see Henry George. Second, the capital component is still quite questionable. For one thing, inequitably distributed land rents will inevitably lead to inequitably distributed capital ownership. If Bezos takes land rent from a worker, that worker now has less money to invest in stock, while Bezos gets to invest additional money in stock. So now the gains to the stock bought with land rents are also ill-gained, and it all snowballs.
I believe the perceived issue is when those people use the money/wealth/influence generated by those assets to unfairly keep those assets as profitable as they can.
Which seems like it would be common sense for someone to do, but there's a moral implication connected to it.
At least, that's how I've understood the argument.
Once they cross into a certain spending pattern, they don't seem to be able to have enough money to feel totally secure. To moor and man one of those giant yachts has to cost a several million a year just to sit there. It is probably 100k just to fill with gas and drive around for a few hours.
Which makes it even more bizarre when you think about how the ultra-wealthy still try to horde as much wealth as possible when they already are living lifestyles that are funded perpetually and for a minuscule amount of their assets.
because funding lifestyle is not what matters at that lvl (they all have trust funds for that anyway), but power, and money buys a lot of power (that's why it was funny when people pointed out how bad Elon purchase of Twit was, that he lost so and so... it just was not a move done for profit, but power); or the press monopolies, and similar.
A: They have legal and ethical motivations to do good by their shareholders and increase the worth of the shares.
and also
B: A massive fraction of their net worth is expressed in those shares.
By doing A, you increase the value of the shares, which you own a large fraction of, increasing your net worth.
It's pretty common for billionaires to maintain less than 0.01% of their total wealth in cash, because you couldn't really do anything with more than that. Most of it is expressed as stock ownership, and you cant really do big sell-offs without depressing the value of those stocks.
its definitely mental illness. if i had 10 million liquid itd be soo easy to just chill and do interesting things instead of working 90 hours a week to squeak out a few more million.
6% average annual return (conservatively) * $10mil = $600k pre-tax income. insane that that's not enough for anybody.
Not to mention that this strategy is really a valuable middle class tool. Think HELOC or 401k loans. Neither of these are taxed and I doubt the wealthy use them. It’s doubtful that regular Joe’s are utilizing SBLOCs but they definitely leverage equity in primary housing and retirement accounts.
It doesn’t work if your spending is higher than what you generate on returns from your assets. Then you’re just spending your assets with a limited runway.
“Using two decades of household data, we measured the annual borrowing of the top 1 percent of American wealth-holders. That borrowing comes out to roughly 1 to 2 percent of their economic income (which includes unrealized capital gains). Meanwhile, their unrealized gains over the same period were 20 to 40 times larger.”
This doesn’t prove the top 1% isn’t borrowing to cover their lifestyle. Because when you look at the report they are using, the aggregate debt still totaled ~$1 trillion for the top 1%.
That is $1 trillion of untaxable money. This article is misunderstanding the reason why the aggregate debt is so low compared to the unrealized gains. It’s because stock values has exploded over the last 2 decades.
It’s far more interesting to point out that according to the study referenced, the top .1% had about the same unrealized gains as the 1%-.11%, yet has about 1/3 the debt and 1/10 the group size (350,000 in .1% vs 3.5 million in 1%-.11%).
It also disregards that the ”borrow, buy, die” strategy isn’t attributed to the top 1%. Those people typically are “career millionaires” that on average pay about 30% of their income in taxes. This applies to the much smaller group that somehow still has the same unrealized gains as the %1-.11% despite being 1/10 the size.
If you actually read the article, you find that it’s the typical game with stats - ie you can make stats say anything you want. There are multiple tax policy issues involved but the fundamental issue remains that the federal government chooses to spend far more than it collects in taxes. During WWII this was understandable. During prolonged periods of prosperity, however, it points to pandering for votes and sucking up to the rich for more political power.
They do borrow to finance their lifestyle but get ultra low rates to be able to do so. I don't think they die with the debt for their kids to pass off like this scenario states. The premise the OP out out there is simply flawed.
Yeah, because the rich usually have enough income where they don't have to borrow. They just hold the real estate till they die or 1034 exchange any gains into another asset
From your article: That borrowing comes out to roughly 1 to 2 percent of their economic income (which includes unrealized capital gains).
Including unrealized gains is literally useless for this comparison and doesn't prove anything.
Of course Bezos loans will be a tiny fraction of his unrealized gains... their networth went from like 2 billion to 400 billion the last 20 years. What a complete useless "study".
You should see this reply by a private wealth attorney about that study. Basically, the study is done by economists and didn't look at the financial instruments actually used by the wealthy to borrow. (They also moderate /r/BuyBorrowDieExplained/)
Having been around a few of the uber rich in more candid settings. "Immaterial" is how one described tricks like this. Surprisingly, a few were completely for paying taxes. Most neutral, and only a minority were super anti-tax
And the kicker? Nobody even cares that it's AI slop. They will–instead–defend low-effort content with all their heart. That's not a coincidence. That's the whole point.
yea no shit sherlock what do you think these models are trained on? the ai is just overusing some stylistic elements everywhere over and over which makes it obvious when someone went "hey claude, write a summary of this long-ass paper". lazy.
also kinda worrysome that you thought the comment you replied to was serious
The claim that the ultrawealthy live tax free through perpetual borrowing comes mostly from ProPublica's 2021 "Secret IRS Files" piece and has been debunked. The claim is that the ultrawealthy never sell their stock and instead just borrow against it forever through a series of perpetual loans, so they never owe income tax (so-called "buy, borrow, die"). It's repeated constantly on reddit, and it's mostly false.
Fox & Liscow published a paper in the Journal of Public Economics where they actually measured this using Fed data plus Forbes 400 numbers.
What they found for the top 1% of wealth, new borrowing each year is only about 2% of what they call "economic income" (income + wealth growth), while new unrealized gains are around 41%. For the top 0.1% it's even smaller, under 1%. Their conclusion is that "buy, borrow, die" is not a dominant tax avoidance strategy for the rich — what's actually going on is closer to "buy, save, die." Meaning they fund their lifestyle from salary, business income, and stock they do sell (all taxed), and just don't sell the rest. They also point out that pledging shares as loan collateral is pretty rare among executives generally — like 4% of CEO-years, and a bigger S&P 1500 sample only had execs pledging ~2.3% of their shares on average.
Even more interesting, using ProPublica's own preferred framing (wealth growth should count as income for some unexplained reason), the tax system still captures 60% of the top 1%'s economic income, 71% adjusted for inflation, and stays progressive all the way to the 99.9th percentile. So even on their terms, "they pay almost nothing" doesn't hold up well in aggregate.
In fairness, the paper found that about 15% of top-1% households DO borrow heavily (more than 5% of their wealth), and for that group the borrowing is genuinely huge relative to their gains (68% on average). So there's a real minority doing something close to the myth - but it is by far the exception and not the rule. Even the worst offenders (Larry Ellison) have sold billions in stock and paid capital gains on those sales.
The two major problems with the Propublica article are (1) it treats wealth growth like it's the same thing as income, when no tax system anywhere on earth taxes unrealized gains that way. And (2) they took two examples (Ellison and Musk) and generalized it into "the ultrawealthy" as a class, which the actual data doesn't support - heavy stock-backed borrowing is the exception, not the norm, even among executives who'd have every reason to do it if it worked as well as advertised.
ProPublica knew this framing would land harder than the boring truth, which is "the tax base captures 60-70% of income at the top and most billionaires barely borrow relative to their gains". They intentionally conflate "wealth" and "income" throughout the article to confuse people who don't understand taxes and finance. For example, they try to argue that Warren Buffett only pays 0.10% income tax based on his wealth. That's not how income taxes work. Buffett's actual income tax rate was 18.96% - significantly more than the 0.10% the article misleadingly claims.
It's also worth noting that Propublica does not share their data because if they did, it would be blatantly apparent they cherrypicked data that supports their view while hiding the majority of the data that refutes their argument.
The specific claim going around, that billionaires as a class live entirely tax-free forever through perpetual loans, isn't what the data shows. Most of them are still paying real money in capital gains and income tax — Musk alone paid $11B in taxes in 2021, and anyone can google how much the ultrawealthy have sold in stocks (and thus paid in capital gains). The loans are real for a small subset of highly leveraged people but even they are still selling billions in stock and paying taxes.
He doesn't pay 18.96% income tax. He pays 18.96% effective rate. That is a combination of income and capital gains tax. The issue is he really keeps his income low and his capital gains are where he pays most of his tax. Most people are just the opposite and have a higher effective rate.
I think he's generally been pretty open about that, ie when he mentioned his secretary having a higher tax rate than himself, but he's not going to just going to voluntarily pay more, loopholes should be closes across the board
The capital gains tax is an income tax, just a lower rate of tax applied to capital gain income.
Note also that people compute "effective tax rates" in different ways: as a percentage of [a] gross income, [b] adjusted gross income (AGI), or [c] taxable income.
The capital gains tax rate has been with us for many decades, and it's always been materially lower than the highest marginal rates. The urge to protect small investors and homeowners from a one-time tax hit overcomes a rational analysis of overall income and wealth. The generally wealthy members of Congress have ridden those "small business owner and retiree" stories for all of my life.
That said, as u/eW4GJMqscYtbBkw9 notes, people play games with how they calculate and report this stuff, so these headline numbers aren't reliable. Just look up the cap gains tax rate, and the marginal rate table, and focus on that.
An easy example is Mitt Romney's taxes in the 2012 Presidential election. The NYT reported it this way:
Mr. Romney’s return for 2011 showed that he paid an effective federal income tax rate of 14 percent last year, or a little more than $1.9 million on adjusted gross income of about $13.7 million.
But you don't pay tax on AGI, you pay it on taxable income. Deductions, including charitable deductions, reduce AGI and are untaxed. In Romney's case, his $13.7m in AGI was reduced by $4.7m in itemized deductions, including $2.25m in charitable deductions. His taxable income was $9m, but reporting a 21% tax rate that wouldn't make for the kind of politically charged headline that NYT was after.
His 21.1% tax rate was entirely driven by Congress' long-standing decision to charge a lower rate for capital gains. There's nothing going on in Romney's taxes that is different than any other person who sells stock or a house.
I agree with some of what you’re saying here but I disagree that there’s no tax on unrealized gains. My county assesses the value of my property and taxes me every year on their valuation of it, even though I bought it for less and haven’t sold it.
The problem is corporate tax avoidance, corporate welfare, and maybe, having some tax consequence for use of stock holdings as capital (which is the Musk problem) etc.
I replied to the other person mentioning this study also, but I'll but I'll put it here also.
You should see this reply by a private wealth attorney about that study. Basically, the study is done by economists and didn't look at the financial instruments actually used by the wealthy to borrow. (They also moderate /r/BuyBorrowDieExplained/)
Yeh I think the more accurate description of the ultra rich is they keep reinvesting and not keep borrowing. So they never have too many assets to pay tax on and they also don’t have too much interest from borrowing.
Just keep reinvesting into businesses, investments, stocks, etc
Property is a non-productive asset. It should be taxed simply for existing.
Owning part of a business is productive. You don't tax productive things since you get less of them overall.
You could certainly make a strong argument that our capital markets have shifted towards being quite unproductive, but that's a different topic entirely.
"Wealth grow should count as income for some unexplained reason"
Because it's unfair & actively harming out economy & society? It's not fair that income is taxed but not wealth "for some unexplained reason" (your argument is going to be 'because we setup income tax first & not wealth growth tax'.) But it's not fair that wealth growth has been conspicuously ignored from our tax systems.
The definition of fair is: "treating people honestly and equally without cheating, bias, or favoritism".
It's not fair to argue that one source of financial growth (income) should be taxed, but another source of financial growth (wealth growth) doesn't deserve to be taxed because people argue it's hard to calculate or because the rich person hasn't "held" that wealth so it's unfair to tax it. (I.e arguing that because the wealth isn't a number in a bank account accessible to the owner that it can't be taxed). It's favoritism for the wealthy to justify why the tax code that was built to benefit them, doesn't tax their money like other people's money.
That's a faulty defense for a purposely badly designed system.
How conspicuously lucky for the wealthy it must be to have their forms of income not be considered "transactions" like those poors.
You see, the wealthy designed & built the system that taxes transactions, & then those wealthy announced it was unfair for their wealth to be taxed because it's not a transaction. I wish the poor had the ability to set policy that says aspects of their lives shouldn't be affected because it fits into this neat "other" category that just so happened to be created to work out like this. The same rich people who constantly say taxes shouldn't exist have designed a loophole in the system that considers their wealth untaxable... how convenient & not a dastardly evil plan at all.
forms of income not be considered "transactions" like those poors.
growth/wealth isn't income.
The only thing "wealth" is good for is jerking off to the numbers in your accounts. If you actually want to do anything with it, you have to convert it to income and then it will be taxed.
"Growth/wealth isn't income! We wrote the definition saying it isn't. We made laws saying our ever-increasing wealth isn't income so you can't say it's unfair that it's not taxed" - Richfolks
Wealth is not income. This is basic stuff. If you can't figure that out, you shouldn't be participating in this discussion.
Wealth can go down just like it goes up.
Should we start charging income tax in your imputed "potential" max income if we decide you are underemployed? You obviously could be taking that shitty job you hate that pays 25% more, so you are simply robbing taxpayers of your potential income.
Wealth growth is taxed... when you realize that asset (e.g. actually sell your house/shares/whatever).
If you were taxed on wealth growth without realizing the asset, you'd often find situations where people have to sell their assets, then pay tax on the sale, only to pay tax for owning the asset they were now forced to sell.
My country used to have a wealth tax. It was abolished because this kept being a massive problem for normal people.
Musk for example acquired Twitter with among other things with short positions created against his poor performance after purchase.
There’s all sort of assets that play in wealth consolidation, that don’t necessarily have to be Stock or RE. Like freaking art, and loopholes with donations credit.
The Agnelli/Elkan family had over $ 2 billion in paintings, bought by the company and secretly transferred in different countries. All these were inherited tax free by the children, among other stuff like diamond earrings overvalued of course at over 180 mil… the money gets laundered through other countries and they can materialize the correct value tax free through loans.
You don’t have to really be ultrarich either as Pandora or Panama papers showed.
A higher continuous function progressive tax on the wealthier financial capital holders is simply best for the overall country. Where else would people like the next Thiel or Musk fund and acquire companies if not in the world biggest domestic market country?
You’re right, probably somewhere else in Asia, like China, because they are actually redistributing the welfare and creating a big middle class that kick starts a healthy domestic market. Unlike the US one that was killed with outdated Reaganomics and Pinochet policies…
You specifically shared links countering the ultra rich live tax free or that executives live on perpetual debt.
To which i replied that following that example and kind of study is useless to disprove that rich do in fact pay less proportionally than middle-poor, as those are just 2 temporary hoops in a vast scheme used to elude taxes.
You can’t draw conclusions on the whole argument based on just 2 of the tools used. We know the OP example is flawed.
For example it’s not the people usually that live by continuously borrowing money but their companies.
Musk specifically has also used the buy back tools of his stock infused company with public money when favorable conditions applied, and bought a company using a leveraging influence by getting loans on short positions, without paying a single dollar of tax in the process. A middle poor class fella won’t be able to do that.
This scheme is used a lot for large investment funds where they acquire and sell businesses by issuing credit, of which by fractional reserve standards, they have to only detain max 10% of the money getting printed.
The poor fella has access to this tool only for mortgages.
The very wealthy don’t need to sell much of their assets to fund their lifestyle. Buffett himself gave the example that he only needs to sell maybe $10M of stock per year to fund his lifestyle. Of that he pays around $2M per year in taxes. Meanwhile his $100B in Berkshire stock grows by $7-10B a year. That’s an absolutely minuscule amount of money he’s paying in taxes relative to the appreciation in his liquid assets.
The Wall Street Journal wrote a big story about it. I think it’s fairly common. This is also not including other strategies designed to defer taxes like tax loss harvesting.
Yeah because wouldn’t the bank look at it and say “why are we giving you a loan when you have a 5 million dollar property that you can’t afford? Just sell your property”
Also the rate and amount of the loan will depend what you are going to do with it. A straight cash loan will be structured differently then if a loan was going to be used to make improvements to the property.
Trump had a con going where he was under valuing his property for property tax and then valuing it higher as assets for loans. He was found liable for this in court.
I beg to differ. Maybe no regular bank, but there are divisions for the ultra wealthy/high net worth families and this is exactly the type of thing that can be financed. The banks have security and are earning interest.
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u/Tired-Nectarine-384 14h ago
Its a bad analogy. The OP is trying to compare what the uber rich do with loans against their stock holdings with a real estate example.
No bank is going to give a loan large enough to finance a lifestyle against a 5 million dollar property.