That is result of some really insane laws that has been written about a million times. They have known that zillionaires are using it to avoid paying taxes altogether, even after death.
While I agree, there's something that feels unfair about double taxation.
Here's an idea:
- Capital gains become taxable when you borrow against an asset, proportionate to the amount borrowed.
- The gains which have already been taxed are added to the asset's cost basis, so they're not taxed again on sale (basically same as sell and rebuy).
If the shares subsequently tank, you can carry forward the loss against future gains on the same asset, but can't claim a refund or offset unrelated gains (to avoid incentives to transfer value to a different company and dodge liability, etc.)
For example:
2000: I buy $1M of S&P 500 ETFs.
2026: They're worth $8.5M ($7.5M gain). I borrow $2M against them, effectively realising ~24% of the gains (~$1.75M), and pay CGT on that amount. My cost basis increases to $2.75M.
2030: I sell up for $10M. Instead of paying CGT on $9M of gains, I pay it on ~$7.25M, since the rest was already taxed.
If they forced sell any stock that is has been held for more than a year on random dates and bought them back automatically, the whole scheme will be done for.
The headline is editorialized way beyond what the article is about:
> A new survey of 57 of the world’s biggest private banks and other lenders, conducted by Deloitte and reviewed by The Wall Street Journal, offers the fullest picture yet of this opaque corner of finance. Banks don’t always break out such lending on their balance sheets, and there is no central tally of how much is outstanding. The report finds that stock-based lending, better known as Lombard loans to borrowers in Europe and Asia, is increasingly available to those lower down the wealth scale.
> ...
> In mid-October, Charles Schwab said its pledged asset line product available to people with at least $100,000 in nonretirement assets drove a 35% surge in bank-loan balances, to $72.3 billion in the third quarter. A spokeswoman said usage grew after Schwab launched a fully digital process three years ago that can get the loans approved within minutes.
Mixing "buy, borrow and die" up with a pledged asset line is ridiculous and clickbait to the point of disrespect for the reader's intelligence. The former is a boutique product used by the uber-rich (net worth in 9 figures minimum) to get around estate tax. They're certainly not using a pledged asset line, which is available to you and me but doesn't do anything for estate taxes.
The cynical read into this is WSJ is trying to whitewash the "buy, borrow and die" strategy using "hey, if the same strategy available to the plebs, then it must be morally justified, right?"
the financial sector is an ongoing construction project, going the direction of all items having an easy way to be valued to the minute, with the merchant and reseller having the same price instead of a wildly different one, all items then being able to be used as collateral instantly, fractionally sold as shares, and with a derivatives market on top
this project is not done, it’s not close to done, but improvements in this space have led to more people being able to access this lending market
I see that improving beyond publicly traded equity and real estate
That's technically cool; many nerds don't appreciate the wizardry that exists in finance. But this is really an ethical discussion. The "more people" are still the richest members of society, and society is far from fully meritocratic. Should we allow inequality to increase unchecked?
I can see arguments that the Walton family deserves to be ludicrously rich. I don't see why they should have access to tax avoidance strategies unavailable to Bertie the Janitor. I also don't see why someone merely Porsche-rich should have access to those, either.
That is result of some really insane laws that has been written about a million times. They have known that zillionaires are using it to avoid paying taxes altogether, even after death.
as soon as wealth of any sort is collateralized the tax code should treat it as liquid and tax it. preferably heavily.
While I agree, there's something that feels unfair about double taxation.
Here's an idea:
- Capital gains become taxable when you borrow against an asset, proportionate to the amount borrowed. - The gains which have already been taxed are added to the asset's cost basis, so they're not taxed again on sale (basically same as sell and rebuy).
If the shares subsequently tank, you can carry forward the loss against future gains on the same asset, but can't claim a refund or offset unrelated gains (to avoid incentives to transfer value to a different company and dodge liability, etc.)
For example:
2000: I buy $1M of S&P 500 ETFs.
2026: They're worth $8.5M ($7.5M gain). I borrow $2M against them, effectively realising ~24% of the gains (~$1.75M), and pay CGT on that amount. My cost basis increases to $2.75M.
2030: I sell up for $10M. Instead of paying CGT on $9M of gains, I pay it on ~$7.25M, since the rest was already taxed.
It seems easier to just tax the loan as income unless it's a margin investment.
Yeah if you borrow against it, IT IS REAL. The lender considered it real!
If they forced sell any stock that is has been held for more than a year on random dates and bought them back automatically, the whole scheme will be done for.
Exactly. This is how IRAs already work. Taking a loan (beyond your basis) should count as realized income (while also adjusting your cost basis).
The headline is editorialized way beyond what the article is about:
> A new survey of 57 of the world’s biggest private banks and other lenders, conducted by Deloitte and reviewed by The Wall Street Journal, offers the fullest picture yet of this opaque corner of finance. Banks don’t always break out such lending on their balance sheets, and there is no central tally of how much is outstanding. The report finds that stock-based lending, better known as Lombard loans to borrowers in Europe and Asia, is increasingly available to those lower down the wealth scale.
> ...
> In mid-October, Charles Schwab said its pledged asset line product available to people with at least $100,000 in nonretirement assets drove a 35% surge in bank-loan balances, to $72.3 billion in the third quarter. A spokeswoman said usage grew after Schwab launched a fully digital process three years ago that can get the loans approved within minutes.
Mixing "buy, borrow and die" up with a pledged asset line is ridiculous and clickbait to the point of disrespect for the reader's intelligence. The former is a boutique product used by the uber-rich (net worth in 9 figures minimum) to get around estate tax. They're certainly not using a pledged asset line, which is available to you and me but doesn't do anything for estate taxes.
The cynical read into this is WSJ is trying to whitewash the "buy, borrow and die" strategy using "hey, if the same strategy available to the plebs, then it must be morally justified, right?"
https://archive.ph/36hRo
Finance capitalism, the root of all evil.
Won't the people using this strategy end up paying a lot more (in terms of percent ownership of their holdings) in an extended downturn?
the financial sector is an ongoing construction project, going the direction of all items having an easy way to be valued to the minute, with the merchant and reseller having the same price instead of a wildly different one, all items then being able to be used as collateral instantly, fractionally sold as shares, and with a derivatives market on top
this project is not done, it’s not close to done, but improvements in this space have led to more people being able to access this lending market
I see that improving beyond publicly traded equity and real estate
That's technically cool; many nerds don't appreciate the wizardry that exists in finance. But this is really an ethical discussion. The "more people" are still the richest members of society, and society is far from fully meritocratic. Should we allow inequality to increase unchecked?
I can see arguments that the Walton family deserves to be ludicrously rich. I don't see why they should have access to tax avoidance strategies unavailable to Bertie the Janitor. I also don't see why someone merely Porsche-rich should have access to those, either.