Buy, Borrow, Die.
So, look I should not be writing about this because, boy, I sure like wealth for its general propensity to promote aesthetics in the world, but:
When a report came out this summer on how ultra wealthy don’t pay taxes because they don’t earn money like you and me, but instead take out loans against the enormous and constantly growing value of shares in their companies, people were shocked across the United States. And, really, I think that the most shocking thing was how easy and logical the mechanism looked when put on paper like that, and also just by how incredibly large the amounts of money were.
Here are a few beautiful words from Abigail Disney, a scion of, yes, that Disney family:
[..]these methods and practices — things such as offsetting income with losses in unrelated businesses; structuring assets to grow rather than generate income, then borrowing against those growing assets for cash needs; and deducting interest payments and state taxes from taxable income — are so downright mundane and commonly applied that most rich people don’t see them as unethical.
[..] I came into a significant amount of money at the tender age of 21. I became an asset manager before a lot of people get their first apartment. I’m 61 now, meaning I’ve been the recipient of four decades’ worth of tax advice from the decent, good, kind men (yes, they were all men) who were put in place by my grandparents, and then my parents, to ensure that I wouldn’t do anything stupid with what I had been given.
Buy, Borrow, Die.
The thing is that this is normal. If you are this rich, your lawyers and tax accountants will absolutely devise a plan to avoid taxes because, for you, their million dollar fees are a rounding error.
But people are angry. And so, sure, this week a billionaire tax bill was proposed in the Senate, and then died soon after (as soon as Friday). It was exactly what it said on the cover: it would tax billionaires on their shares going up in value, regardless if they sold or not. So, say, Elon Musk’s net worth grew $170B during the pandemic .. yep, he would have to pay $30B (20%) in cash (at some point, depending on his tax years).
Like, let’s not get dramatic, but there should absolutely be an exclamation mark at the end of the previous sentence. He didn’t make that cash. He would totally have to sell or borrow that amount to be able to pay.
The bill was shot at from all sides. Damodaran critized the gaps (what about illiquid assets like art, what about years of losses, is the Treasury going to return Musk the $30B back? .. do we really think markets will only go up, and if not, is the Treasury going to be net negative?), Levine joked about giving birth to a “truly joyful industry of public-market avoidance…,” because, yes, the bill would absolutely keep those lawyers and tax accountants busy developing new loopholes.
Look, they all probably have a good point, but still? We are talking here about the top 700, but we are really talking here about Elon Musk, Jeff Bezos, Peter Thiel, Warren Buffet, Mark Zuckerberg etc., and you could absolutely say about them that their wealth has pumped massively during the pandemic by the simple mechanic of monetary easing.
And, we have said before, like, so many times that the billions of QE introduced by FED caused the markets to go violently up because they got recycled right back into the markets. When you buy billions in treasuries and bonds off of market, this puts a floor underneath them, but mostly also gives investors, companies and funds selling those bonds money to go back to the market and buy stocks (and bonds and other financial products .. of course). And, boy, did some stocks go up over the past 2 years.
So, look I don’t know, but wouldn’t a quick post-pandemic billionaire tax charge be a great way to mop up some of that money? haha..