From slashdot: This seems like a very smart and rational (and fair) thing to do. Lots of further links at the link above. Any comments from the more market/tax savvy members? Major or Sam? One last edit: Critics refer to this as a wealth tax and not an income tax, and point to the 125 billion dollar exodus of capital from France following their own mark-to-market system.
To be honest, I'm not sure how this works. Assuming Jobs' wife shared his assets, I don't see how she would avoid paying taxes on the full appreciation whenever she were to sell. If the assets were entirely his and she got them through some kind of estate plan, I would think those assets would be subject to the estate tax (if that exists right now?) - but I don't really know the details of how that tax works. If there's some way she's avoiding paying taxes on the appreciation before his death, that loophole needs to be closed. But mark to market taxation, if I understand it right, is a terrible idea. You're paying taxes on wealth that you haven't necessarily accumulated. Let's say you own 1000 shares of a volatile stock for the long term. In 2011, a share is $10. In 2012, it's worth $20. In 2013, it's back to $10. You never received any cash and you're not worth any more than you were when you started. But you would be subject to cash taxation in 2012 - which would force you to sell the stock when you don't want to, simply to raise cash to pay taxes. I have no problem with how capital gains taxes are done now. Though I wouldn't have a problem with an idea where you can't maintain a stock basis for more than 5 years or 10 years or whatever. So if you own a stock, you have to mark-to-market at least every 5 years - you could do it anytime you want to minimize your tax penalty and to limit the volatility craziness, but it would prevent people from holding stock for 50 years when its appreciated likes crazy without paying any taxes at all. But ultimately, I think this would be a bigger problem with the estate tax than with capital gains tax.
It's also worth noting that our 2008 financial crisis was caused, in part, by mark-to-market accounting. It forced banks to write down loans based on a frozen credit environment - the banks had the cash to pay all their bills and weren't in true danger of immediate collapse. They just, on paper, didn't have enough assets because of the write-downs. M2M is not necessarily a bad thing, though. If there wasn't M2M accounting, we might have avoided a bailout entirely, or banks may have collapsed later on in much, much worse shape if things really got worse. It's hard to say - for the banks, M2M accounting is there to generate stability and serves more of a purpose. For taxing individuals, though, I think its much more difficult to justify because you force people to make bad economic decisions (selling stock when they don't want to) in order to raise capital to pay taxes.
This would make our income tax revenue much more tied to the swings of the market. Can you imagine how bad it would have been in 2008 when everyone who lost money claimed refunds based on their current value of stock?
Yeah, now that I think (and read) about it more, it seems like you're taxing on what a possession might be worth. I.e., stock has no "value" until you sell. As to weslinder's comment, I too am confused as to how the government would react if a stock dramatically fell (e.g. dot com boom and bust). I also think this has to be balanced carefully, as it would seem to punish money "savers" (like me).
Yeah I'm kind of mixed about this also. I would have to see some proposals about how taxing wealth would be handled first.
Yeah, but I think that (at least on paper) the idea has merit. It seems rather unfair (to put it lightly) that someone can essentially pay no capital gains taxes on things like a billion dollar yacht simply because you have not yet technically "sold" the wealth you've accumulated with which you made the purchase. That's not right.
It doesn't matter. She never owned those shares prior to date of death (though a community property state might argue otherwise, but that is irrelevant to the IRS). He owned them. You have to also keep in mind, if stocks lose money, then get inherited, the loss disappears forever. Spouses aren't subject to the estate tax, so there won't be estate tax on it. The Estate tax does exist. Only 2010 was a good year to die, though you could have opted into the estate tax in 2010 (there are actual reasons to). It would be an incredibly stupid idea to tax unrealized gains and losses.
Is it unfair that you didn't have to pay taxes on your future income that went against financing your home? Essentially the same thing, they just do it on a larger scale.
From what I understand, you aren't paying the taxes today on income you are receiving tomorrow. The tax on the income from the stock will either come at when the individual sells it (capital gains) or passed on (estate tax). It will be paid at some point.
As it relates to juicystream, his post is confusing because the argument is that you're using current wealth in stock as borrowing collateral to finance purchases - without paying a tax as you would if you sold the stock to finance said purchase. If you have enough stock, this is a huge paper loophole. As to your post, I think you only pay on the appreciation after you own it. I.e., Steve Jobs' wife gets his stock at the current price and will only pay tax on it relative to it's appreciation since his death. That's a rather special case though, and I don't think that necessarily is unfair - i.e. because she was his spouse.
Are they borrowing this money without ever paying it off within their lifetime? Because if they take earnings to make payments, they have to pay capital gains tax on that.
Presumably yes. Good point. I don't have a real firm stance here - just looking for others thoughts. (I just realized I used "i.e." way too often in my previous post)
I still don't get it as I had the same question. From what I read, she only gets taxed on the appreciation from the time of death on forward? That doesn't make sense, but I'm no tax attorney. She owns them at the time of death, and takes possession at that time, so thats when her clock starts? If this is the case, that's pretty slick for the widow..
I was under the impression capital gains tax was significantly higher than income tax. Again - I'm searching for info/thoughts here. Not trying to argue per say.
Mark-to-market taxation is not good. However, advancing the tax basis on a person's death does not make sense. I assumed that rule was derived from 2 ideas: the estate is being taxed and it being difficult to determine the original basis many years later. In reality, very few estates are taxed and with all the information we have at our disposal, the original basis can probably be found. If the person who inherits cannot prove the correct basis, then a basis of zero is really not unfair since that person paid nothing for the asset.
if Zuch decides to go the Oracle route and borrow against his stock -- he's running the risk of a cash call should the stock drop enough. Lucky the RIM guys didn't follow this scheme. His borrowings are repayable -- and the funds he uses to repay them will be subject to tax. Taxing debt seems very odd. I do find it weird that asset appreciation is essentially untaxed at death except for the few who pay estate tax. (And the estate tax is not calculated on untaxed appreciation). By comparison -- there is no estate tax in Canada -- but all assets are deemed disposed at death and tax becomes payable by the estate on any accrued gains. The assets can transfer to a spouse tax free -- but the spouse inherits the tax cost of the deceased. So there's no cost base bump when someone dies. Any eventual realized gain would be subject to tax.
This is the part that I think should be changed, then. At the very least, the accumulated taxable gain/loss should be transferred to the new owner. I don't think a taxable gain should ever just disappear - all that does is encourage people to try to game the system.
