I've been curious about how billionaires could say they don't have any cash on hand but still buy luxury things like mansions and huge yachts. I found out how they do it and it's not that difficult. Elon has a net worth of about 700 billion but some sources are saying 800 and other sources say 600 billion. But it turns out, he's famously Known for being cash poor. As in when it comes to liquid cash, he doesn't have much. So he probably should be heavily taxed but he isn't and I'll explain why he and a lot of other rich people are escaping taxes.
Instead of getting a salary like everyone else does, billionaires are compensated through company ownership, that is mostly their shares. This makes sense because shares aren't considered income until they're sold. And they never sell their shares.
So what do they do now? They take the value of their shares, use those shares to get a loan from the bank, and the bank gives them the loan because they can see millions of dollars worth of stock owned by the billionaire. And since the bank is lending the billionaire money, those loans are considered borrowing and so the IRS doesn't tax them at any point.
So all these billionaires are living the life of luxury while not having to pay any taxes on the loans they use to buy their expensive things. Plus, since their stock continues to appreciate, there will always be enough income generated from the growth in their stock to cover the payments on the loan.
To me, this seems a little bit like cheating. But I guess in a way, it is optimizing. I'm just not sure where the boundary between the two lies anymore.
The system was built for the very wealthy, not for the average person. When you are a very wealthy person you can use your assets to borrow money. The more assets you have, the less you will pay when you borrow money. I'm not sure which one makes me more upset, that it's legal or that it's so simple once you figure it out.