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Comment by Schiendelman

3 hours ago

I used to think this - but when I talked to a tax lawyer friend and we walked through the steps they take, usually they're just deferring taxation that does end up getting paid by an entity eventually.

21 comments

Schiendelman

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ck_one  3 hours ago

Capital gains tax is clearly lower than income tax. So why did you change your mind?

  • nickff  2 hours ago

    Not the commenter you replied to, but one thing to note is that capital gains tax (at least in the context of investments in corporate equities) is applied after corporate taxes. Profits and reinvested earnings are taxed as profits, and they're two of the key components to valuing an equity.

    As such, when comparing income tax and capital gains, you should add the impact of corporate taxes. Incidentally, corporate taxes are why many small business owners pay themselves wage income, rather than doing stock buybacks or dividends.

    • topgrain2  2 hours ago

      > Incidentally, corporate taxes are why many small business owners pay themselves wage income, rather than doing stock buybacks or dividends.

      You've been sold some BS. Usually this is because you're required to take a "reasonable" wage for your role in a company. Otherwise I guarantee you every independent contractor out there (among others) would be operating in a way that made 100% of their income business profit, rather than wages, as it has enormous tax advantages. Approximately everybody tries to find out the least they can take as wage income without pissing off the IRS, and sets their "wage" to whatever that is.

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    • saghm  2 hours ago

      If the income was earned through dividends, maybe this would be a reasonable argument. Most of the time stock just gets bought and sold by investors rather than the company itself though, so it's not clear why corporate tax would have anything to do with this.

      Sure, the stock price should somehow be tied to the actual value of the company, but for a while now it's been mostly indistinguishable from a Ponzi scheme other than a few companies that do sometimes decide to buy back some stock, which makes it slightly less sketchy but if the value is from the company buying it back, it's a lot closer to debt or a bond, which is not at all how anyone treats it.

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toomuchtodo  3 hours ago

If they donate the wealth to their own foundation to continue to hold close and control, it doesn't get taxed. If they borrow against the wealth at low interest rates until they die and the basis is stepped up ("buy, borrow, die"), it doesn't get taxed. Certainly, deferment is a component, but there are obvious examples of the very wealthy operating in a manner to avoid taxes entirely when they're able to (realizing the benefit of the wealth without having to realize a taxable event). Trust stacking is a recent fad as well, although I don't have enough data to say whether it is a material concern from a tax revenue perspective.

Silicon Valley Is Obsessed with 'Trust Stacking,' and the IRS Doesn't Like It - https://news.ycombinator.com/item?id=48727963 - June 2026