[a few thoughts of mine]

the frustrating thing about how modern american economics works isn't how complicated things are, but how simple the advantages of the wealthy are .. yet they are never explained simply.

cue Cory, in his recent piece "billionaires don't pay tax"; here's an excerpt.

... This is only partly true, and it obscures more than it illuminates. It's true that CEOs habitually draw nominal salaries – often $1/year – and are only "rich on paper," but this doesn't mean they're not immensely wealthy – rather, this is how they amass immense wealth.

Here's how that works: the US only taxes capital gains (money you make from owning things, as opposed to doing things) when they are "realized" – that is, when you sell the asset that has appreciated in value. If you never sell your asset, you never pay tax on it.

So when an exec takes compensation in stock rather than cash, the exec pays no tax unless they sell the shares. But execs don't have to sell any shares in order to get millions or billions of dollars to play with. Rather, they can stake those shares as collateral on loans.

If an exec sells their shares, they'll pay a 20% capital gains tax. If they borrow against the shares, they'll pay single-digit interest rates. What's more, loans aren't treated as income, so no tax is paid on the loan.

Even better, the interest on the loan can be treated as an expense, which you can apply to any money that comes in the door that you can't help but declare as income.

Working people borrow money because they can't afford to buy cars or houses or just close the gap between payday and an empty fridge. Rich people borrow because it lets them launder their income into tax-free loans.

Here's the thing: this is exactly what critics of this system predicted would happen. In 1920, Rep Cordell Hull ("the father of income tax") warned that the Supreme Court's ruling in Macomber would let rich people "live upon the value" of stock "without ever paying" tax.

the more i think about tax code in the united states, the more i am assured that corporate lobbyists wrote it.

[click to expand for earlier entries]

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