- they pay themselves in stock which does not create a taxable income event
Whenever I have been paid in stock it has always been a taxable event. How would that not be a taxable event for them?
They usually do pay taxes on stocks and options received as compensation, but there can be shenanigans there too.
It works more like this. Phil Pates has stock in Microsoft that he got 40 years ago at $1 per share. Microsoft now trades at about $250, and Phil's stocks total are worth $1 billion or something.
Phil goes to the bank and takes out a line of credit against his portfolio at <1% interest for spending money--yes the rates are really that low for these things. He holds his stock and watches it grow way faster, and inflation drives down the value of the loan he took out too.
Phil dies and leaves the stock to his heirs. Inheritance tax exemption is now something like $25 million (lol), so even if inheritance tax were 100%, it's not like his heirs would be destitute. Oh, and the loans gets paid back and subtracted from the estate, so the heirs don't pay tax on the money Phil spent. But his heirs inherit the stock at the stepped up basis, so if they sell, it's as if they purchased the stock at $250 per share, not $1. They will not owe capital gains taxes.
Phil could spend $100 million a year or whatever and never pay a dollar tax. His tax return might show $0 income. He receives the full stimulus checks too. All in all, it's a pretty great system for maintaining dynastic wealth and ensuring the oligarchy don't pay taxes. And it became extra popular and profitable in the last 10 years due to low interest rates. Can't say the Federal Reserve never did anything for you!
So...the problem lies within the central banks giving these loans and not actually with the rich people. Geez, shouldn't we fix that part first?
It depends on it you're receiving options and then exercising (creating taxable income) or if you are just receiving shares directly (not taxable until you sell the shares). Almost all stock comp plans are based on issuing/vesting options.
With restricted shares that are annually distributed, we had to pay tax before receiving them. You could put cash into your account or otherwise about half were taken as tax.
So the reason the unrealized capital gains tax has come up is because of a loophole being used in which the very wealthy pledge stock in their own companies as collateral for loans from the banks that they live off of then default on. The reason they do this is because 1. they pay themselves in stock which does not create a taxable income event 2. if they essentially trade their stock to banks for liquid funds they are not creating a taxable event.
Of course in my opinion we should go the opposite way and put a tax exemption up to $100k a year (10% return on 1 million dollars) to encourage investing and help retired people retain more of their money (cost of living increases have made a lot of people's retirement accounts insufficient to live off of). If you want to attack this income loophole don't go after unrealized gains (it's a purposeful failure set up, so the politicians can shrug and be like "we tried") instead reclass the pledging of stock/bonds/derivatives as collateral for liquid assets as a taxable event where all pledged investments are written up to the fair market value any gain is taxed at the time of the pledging.... of course I still hate paying taxes though.