You're not really missing anything, but there's a giant loophole.
If you have $84 billion (or even $20 million) in stocks and assets, you can borrow against them without converting them to income. Then you can die. Then your estate pays off the debt without paying income taxes. Thus, 0 income taxes over a lifetime of converting wealth to income.
but the investments generate tax's. If I invest 1 million dollars to hire 10 people at 100,000 $ each, they all pay income tax's. That income tax wouldn't be collected if it weren't for the investment.
* round nubmers **
you'd pay 150,000 usd on a 1 million dollar investment cashout
federal income tax on a salary of 100,000 USD times 10 is 151,040
So the government still gets their tax's (and more if you countother ancillary tax's) AND 10 people have a job
Very few business pay salaries out of investment money. And even when they do, it's temporary. If salaries were paid with investments, the investments wouldn't ever become more valuable.
When you buy stock, you're not paying salaries. You're buying ownership of something that has value, generates income, and mostly intends to use that income to pay salaries.
The argument you're making is an argument against corporate income taxes. That's different.
> you can borrow against them without converting them to income. Then you can die.
But surely you have to make payments on those loans before then... interest payments at least. You're either making those payments with the money you were loaned or from your regular income (that was taxed in the first place). At that point you might as well just pay the capital gains taxes because you're losing the same money to interest payments anyway.
Rich people get access to astonishingly favorable loans. And they never have to make interest payments.
> Merrill Lynch recently quoted an interest rate of 3.2% to clients with at least $1 million in assets. Those with $100 million or more can get a rate as low as 0.87%.
These are loss leaders for banks. They want to entice incredibly wealthy people to do business with them and have their companies do business with them.
> Because your line of credit is secured by your diversified investment portfolio, we can keep the rates low for you. Depending on account size, current rates are 2.40% - 3.65%. Using a line of credit is generally cheaper than carrying a balance on a credit card or taking out a personal loan.
> Borrow up to 30% of your account whenever you need it, for whatever you need. Pay back what you borrow and the interest payment on your own schedule.
The rich invest in hard assets that produce income. Whether that's dividend from stocks, or rental income from commercial buildings. That recurring income is usually enough to service the loan.
And remember the ultra-rich themselves own the bank. Warren Buffet has huge multi-billion dollar positions in Goldman Sachs and Wells Fargo, in addition to owning the real-estate arm of Berkshire Hathaway itself. And the ones that don't own the banks, still get favorable personal treatment from banks in order to get their M&A or underwriting business.
There is tremendous resistance to addressing that loophole. A wealth tax is one way to address it. An estate tax is another. So far a "wealth tax" seems more popular, because most people like the idea of a tax free inheritance but don't have untaxed wealth. Most people actually pay wealth taxes already when they buy cars or houses or a boat or an RV.
If you have $84 billion (or even $20 million) in stocks and assets, you can borrow against them without converting them to income. Then you can die. Then your estate pays off the debt without paying income taxes. Thus, 0 income taxes over a lifetime of converting wealth to income.