Pluralistic: How Goldman Sachs's "tax-loss harvesting" lets the ultra-rich rake in billions tax-free (24 Apr 2023)

Today's links

A dilapidated shack. A sign reading 'Internal Revenue Service Building' stands next to it. From its eaves depends another sign, reading 'Internal Revenue Service' and bearing the IRS logo. From the window of the shack beams the grinning face of billionaire Steve Ballmer. Behind the shack is a DC avenue terminating in the Capitol Dome.

How Goldman Sachs's "tax-loss harvesting" lets the ultra-rich rake in billions tax-free (permalink)

With the IRS Files, Propublica ripped away the veil of performative complexity disguising the scams that the ultra-rich use to amass billions and billions (and billions and billions) of dollars, paying next to no tax, or even no tax at all. Each scam is its own little shell game, a set of semantic and accounting tricks used to gussy up otherwise banal rip-offs.

The finance sector has a cute name for this kind of complexity: MEGO, which stands for "my eyes glaze over." If you're trying to rip off a mark, you just pad out the prospectus, make it so thick they decide there must be something good in there, the same way that any pile of shit that's sufficiently large must have a pony under it…somewhere.

Propublica's writers haven't merely confirmed just how little America's oligarchs pay in tax – they've also de-MEGO-ized each of these scams, like the way that Peter Thiel used the Roth IRA – a tax-shelter for middle-class earners to help save a few thousand dollars for retirement – to make $5 billion without paying one cent in tax:

One of my favorite IRS Files reports described how Steve Ballmer – the billionaire ex-CEO of Microsoft – laundered vast fortunes into a state of tax-free grace by creating hundreds of millions in "losses" from his basketball team, the LA Clippers. Ballmer paid 12% tax on the $656 million he took out of the Clippers – while the players whose labor generated that fortune paid 30-40% on their earnings:

That was Propublica's first Ballmer story, back in the summer of 2021. But they ran a followup last February that I missed (it came out while I was on a book tour in Australia), and it's wild: a tale of "loss harvesting," a form of fuckery involving Goldman Sachs that's depraved even by their own standards:

Loss farming is a scam that was invented in the 1920s, whereupon it was promptly banned by Congress. But Goldman and other plutocrat Renfields have come up with tiny modern variations on this century-old con that the IRS is either unable or unwilling to address.

Here's how it works. Say you've got a stock portfolio where some of the stocks have gone up and others have gone down. You want to sell the high stocks and hang onto the low ones until they bounce back. But if you sell those stocks that have gone up, you have to "realize" the profit from them and pay 20% capital gains tax on them (capital gains tax is the tax you pay on money you get from owning things; it's much lower than income tax – the tax you pay for doing things).

But you pay tax on your net capital gains – the profits you've made minus the losses you've suffered. What if you sold those loser stocks at the same time? If you made a million on the good stocks and lost a million on the bad ones, your net income is zero – and so is your tax bill.

The problem is that selling stocks when they've gone down is a surefire way to go broke. Every investing book starts with this advice: you will be tempted to hold onto your stocks that are going up, because they might continue to go up. You'll be tempted to sell your stocks that are going down, because they may continue to go down. But if you do that, you'll only sell the stocks that have lost money, and never sell the stocks that have made money, and so you will lose everything.

Back when the pandemic started, your shares in movie theater chains were in the toilet, while your stock in tech companies shot through the roof. If you sold the tech stocks then and held onto your movie stocks and sold them now, you'd have cleaned up – today, tech stocks are down and movie theater stocks are up. But if you sold the cinema shares when they bottomed out, and held onto your tech stocks when they were peaking, you'd be busted today.

So selling your loser stocks to offset the gains from your winners is a bad idea. That's where loss-farming comes in: what if you sold your tech stocks at their peak, and sold your bottomed-out cinema stocks at the same time, but then bought the cinema stocks again, right away? That way you'd have the "loss" from selling the cinema stocks, but you'd still have the stocks.

That's called "wash trading," and Congress promptly banned it. If you've heard of wash-trading, it's probably something you picked up during the NFT bubble, which was a cesspit of illegal wash-trading. Remember all those eye-popping NFT sales? It was just grifters with multiple wallets, buying NFTs from themselves, making it seem like there was this huge, white-hot market for monkey JPEGs. Wash-trading.

Turns out that crypto really did democratize finance…fraud.

Wash-trading has been illegal for a century, but brokerages have invented modern variations on the theme that are legal-ish, and the most lucrative versions of these scams are only available to billionaires, through companies like Goldman Sachs.

There are a bunch of these variations, but they all boil down to this: there are lots of ways to sell an asset and buy it again, while making it look like you bought a different asset. Like, say you're invested in Chinese tech companies through an exchange-traded fund (ETF) that bundles together "all the Top Chinese tech stocks."

Maybe you bought this fund through Vanguard, the giant brokerage. Now, say Chinese stocks are way down, because the Chinese government is doing these waves of lockdowns on the factory cities. If you could sell those Chinese stocks now, you'd get a massive loss, enough to wipe out all the profits from all your good stocks.

But of course, China's going to figure out the lockdown situation eventually, so you don't want to actually get rid of those stocks right now, especially since they're worth so much less than you paid for them. So right after you sell your Vanguard Chinese tech ETF shares, you buy the same amount of Schwab's Chinese tech-stock ETF.

An ETF of "leading Chinese tech companies" is going to have basically the same companies' stock in it, no matter whether it's sold by Vanguard, State Street or Schwab. But as far as the IRS is concerned, this isn't a wash-trade, because you sold a thing called "Vanguard ETF" and bought a thing called "Schwab ETF" and these are different things (even if the main difference is the name on the wrapper, and not what's inside).

There's other ways to do this. For example, lots of companies have different "classes" of stock. Under Armour sells both Class A (voting) and Class C (nonvoting) stocks. Though voting stock is worth a little more than nonvoting stock, they both rise and fall together – if the Class A shares are up 10%, so are the Class C shares. So you can dump your Under Armour Class A's, buy Under Armour Class C's and own essentially the same amount of Under Armour stock – but as far as the IRS is concerned, you just sold your interest in one company and bought an interest in a different company, and you can take a big loss and write down your profits from other stock trades.

The IRS does prohibit wash-trading, but only in the narrowest sense. Brokerages are obliged to report trades in which a customer buys and sells exactly the same security, with the same unique ID (the CUSIP number), within 60 days. Beyond that, IRS guidance is extraordinarily wishy-washy, calling on filers to "consider all the facts and circumstances" of their transactions. Sure, that'll work.

Propublica found zero instances of the IRS targeting any of these trades, ever, for enforcement. That's especially true of the most egregious version of loss-harvesting, a special version that only the ultra-rich can take advantage of, called "direct indexing." You might know about "index funds," where a brokerage sells a single fund that tracks a broad index of stocks – for example, you can buy an S&P 500 index that goes up and down with the total value of the top 500 stocks in America.

Direct indexing is something that giant banks like Goldman Sachs offer to their very richest clients. The brokerage buys a mix of stocks that are likely to track the whole index, and puts those shares directly into the client's account. Rather than owning shares in a fund that owns the stocks, you own the stocks directly. That means that when you want to harvest some losses, you can sell just a few of the stocks in the index, rather than your shares in the whole fund.

Here's how that works. In 2017, the US index was up 20%; global indexes were up even more. Steve Ballmer made a bundle. But Goldman Sachs, acting on Ballmer's behalf, sold a few of the stocks in the portfolio and harvested a $100,000,000 loss, that Ballmer could use to trick the IRS into treating his massive profits as though he'd made very little taxable income.

Goldman uses a whole range of tricks to keep billionaires like Ballmer in a lower tax-bracket than the janitors who clean the floors after his team's games. They not only buy and sell different classes of stock in companies like Discovery and Fox; they also buy and sell the same company's stock in different countries. For example, they sold Ballmer's shares in Shell in one country, and then immediately bought the same amount of shares in another country. The IRS doesn't treat this as a wash-trade, despite the fact that the shares have the same value, and, indeed, companies like Shell routinely merge their overseas and domestic shares with no change in valuation.

Thanks to Goldman's ruses – and the IRS's willingness to accept them – Ballmer's wealth has swollen to grotesque proportions. He generated $579 million in losses from 2014-18, and as a result, got to keep at least $138m that he'd have otherwise had to pay to the IRS.

Goldman's not the only one in on this game: Iconiq Captial – a firm that also offers marriage partner scouting for its richest clients – has $13.2 billion under management on behalf of just 337 people. Among those high-rollers: Mark Zuckerberg, whose $88m in gains from Iconiq investments were offset by $34m in imaginary losses that the company manufactured with wash-trades.

In theory, the simplest form of wash-trading – selling your Vanguard China fund and buying a Schwab China fund – is available to any investor. Leaving aside the fact that the top 1% of Americans own most of the stock, this is still a deceptive proposition. This kind of wash-trading only benefits investors who hold their shares outside of a sheltered retirement account, which is a vanishing minority indeed.

Instead, the primary beneficiaries of this activity are the usual suspects: convicted monopolists like Ballmer, or useless scions of wealthy families, like the kids of Walmart founder Sam Walton, who emerged into this world through very lucky orifices and are thus effectively exempt from the need to work or pay tax for life.

Jim Walton is Sam Walton's youngest orifice-lottery-winner. Young Jim saw a $10 billion increase in his wealth from 2014-18, making him the tenth richest person in America. Thanks to wash-trading, he declared only $111 million of that $10 billion on his taxes, and paid $0.00 in tax on that $10 billion gains.

One way that the rich are especially well-situated to exploit loss-harvesting is in converting short-term gains – which are taxed at 40% – into long-term gains, which are taxed at 20%. For people who make a lot of money buying and selling shares as pure speculation, flipping them in less than a year, wash-trading can create the appearance of long-term holdings. Analyzing their trove of leaked IRS files, Propublica showed that Americans who report over $10 million in income almost never report short-term gains. Instead, two-thirds of the richest Americans report short-term losses.

One fascinating wrinkle is that rich people may not even know this is going on. Whatsapp co-founder Brian Acton, managed to "lose" $2.9 million when he sold $17 million in shares – the same day he bought $17 million in shares in nearly the same companies from another brokerage. Then, a few months later, he reversed those transactions, selling his new fund and buying the old one and harvesting another $600,000 in losses.

When Propublica asked Acton about this, he told them he was "not really aware of any events like that…Broadly my wealth is managed by a wealth management firm and they manage all the day to day transactions."

This is completely believable and consistent with the extraordinarily frank account of how elite money-management works that Abigail Disney described in 2021, where the ultra-rich are insulated from the scams, tricks and wheezes that lawyers and accountants dream up to keep their fortunes steadily mounting with no action needed on their part:

Could the IRS block this kind of wash-trading? Yes, but they'd need action from Congress. The most effective way to do this would be to force shareholders to "mark to market" the value of their holdings, taxing them each year on the fluctuations in their portfolio.

Propublica notes that this is incredibly unlikely to happen, though. As an alternative, Congress could change the rule that blocks investors from claiming losses when they buy and sell "substantially identical" shares with a rule that applies to "substantially similar" stocks. This proposal comes from Columbia Law's David Schizer, who says the law "ought to be updated to reflect how people invest today instead of how they invested 100 years ago."

But for any of that to have an effect, the IRS would have to change its auditing and enforcement practices, which currently see low-income earners (who can't afford fancy tax-lawyers who'll tie up the IRS for months or years) being disproportionately targeted, while America's super-rich, ultra-rich, and stupid-rich are allowed to submit the most hilariously, obviously fictional returns and get away with it.

(Image: Matthew Bisanz, CC BY-SA 3.0; Ted Eytan, CC BY-SA 2.0; Bart Everson, CC BY 2.0; Eric Garcetti, CC BY 2.0; modified)

A shot of the legendary El Ateneo bookstore, 'the world's most beautiful bookstore,' housed in a former grand theater in Buenos Aires, Argentina.

Happy Independent Bookstore Day (permalink)

It's Independent Bookstore Day! I love bookstores, especially indies. I'm a recovering bookseller (love you, BakkaPhoenix!) and an inveterate and absurdly optimistic buyer of books – just this weekend, I bought three books at the LA Times Festival of Books, from Pages and Octavia's Bookshelf!

Supporting indie bookstores doesn't mean foregoing the convenience of buying online. pioneered a model that lets you nominate your favorite local bookstore, which receives part of the proceeds from every audiobook you buy at Libro (where all the audiobooks are DRM-free).

Libro is celebrating indie bookstores all week with stellar deals on an incredible lineup of audiobooks, from Octavia Butler's Parable of the Sower to Chokepoint Capitalism, the book Rebecca Giblin and I wrote about how monopolies (including bookstore monopolies like Amazon) destroy the livelihoods of creative workers, and how to fight back:

You can also back your favorite indie bookstore when you shop online at, who – like Libro – donate a portion of the cost of every book you buy to a nominated local bookseller:

Of course, nothing beats actually visiting your local bookstore, browsing the books, reading the shelf-reviews, and talking to knowledgeable, intelligent, passionate booksellers in person. I'm about to embark on a tour for my next novel, Red Team Blues, and I'll be stopping at many great indie stores on the way.

Tomorrow, I'll be in San Diego at Mysterious Galaxy Books for a launch with Sarah Gailey. On Wednesday, I'll be in Burbank at Dark Delicacies. On May 5, I'll be in Mountain View with Mitch Kapor at Books, Inc. There are plenty more stops, in PDX, Toronto, Vancouver, Calgary, DC, Gaithersburg, and all over the UK, finishing in Berlin:

I hope to see you there! Also, my family has asked that you stage an intervention if you see me buying more books while I'm on tour!

(Image: Liam Quinn, CC BY-SA 2.0)

Hey look at this (permalink)

A Wayback Machine banner.

This day in history (permalink)

#20yrsago “Daddy, Are We There Yet?” Alan Kay’s talk at ETCON

#20yrsago A Group Is Its Own Worst Enemy: Clay Shirky’s talk at ETCON 2003

#20yrsago Journalism 3.1b2, Dan Gillmor’s talk at ETCON

#20yrsago Notes from Meg Hourihan’s “Edges of the Writable Web” talk at ETCON

#20yrsago Stewart Butterfield: “The Game Context as a Testing Ground for Social Software.”

#15yrsago TSA screener who smuggled a gun into the airport is still on the job

#15yrsago Sleazy proposed new Dungeons and Dragons license seeks to poison open gaming systems

#10yrsago Man has eaten at 6,297 Chinese restaurants in the USA and Canada

#10yrsago Prof says he’ll grade students on a curve, so they organize a boycott of the exams and all get As

#5yrsago Cops shoot man, then interrupt his funeral to press his corpse’s finger to his Iphone

#5yrsago The problem isn’t that Facebook is creepy, it’s that it’s creepy AND HUGE

#5yrsago It’s 2018, and Google just proposed an instant messaging tool with no encryption

#5yrsago ISO rejects the NSA’s IoT crypto standard, believing it to be backdoored

#20yrsago Movable Type launches TypePad,12597,942024,00.html

#20yrsago Rheingold’s “Technology Innovation and Collective Action” at ETCON

#20yrsago Eric Blossom and Matt Ettus’s talk on GNU Radio at ETCON

#20yrsago Notes from Wireless Routing and Multi-Hop Architectures at ETCON

#15yrsago Anti-teen noise-weapon comes to the USA

#15yrsago EMI: backing up music files online is illegal

#10yrsago Early American tombstone euphemisms for death

#20yrsago Cisco’s routers designed for governmental eavesdropping

#20yrsago Chandler goes 0.1

#20yrsago Notes from “Legal Issues and Emerging Technology”

#20yrsago Patents in Emerging Tech

#20yrsago Andrew “Bunnie” Huang’s tutorial on Hardware Hacking

#15yrsago MSN Music customers lose all their music the next time they buy a new PC

#15yrsago Middlesbrough cops, goons and clerks grab and detain photographer for shooting on a public street

#15yrsago Disneyland bans pictures in its parking lots

#10yrsago Fox sends fraudulent takedown notices for my novel Homeland

#10yrsago William Gibson tries the Google Glass

#10yrsago Then-and-now photos of Disney Parks from early days and today

#10yrsago Finnish websites go dark tomorrow to call for copyright reform*/

#10yrsago China Mieville’s turn-it-to-11 high weirdness reboot of “Dial H”

#5yrsago Colorado Senate Republicans introduce legislation to fire, imprison striking teachers

#5yrsago The used cars that Europe sends to Nigeria are filled with illegal, toxic e-waste

#5yrsago The BBC finally admits that MI5 secretly vetted its employees, an open secret for generations

#1yrago Don't believe Obama's Big Tech criti-hype

Colophon (permalink)

Today's top sources: Nelson's Weblog (

Currently writing:

  • A Little Brother short story about DIY insulin PLANNING

  • Picks and Shovels, a Martin Hench noir thriller about the heroic era of the PC. FIRST DRAFT COMPLETE, WAITING FOR EDITORIAL REVIEW

  • The Bezzle, a Martin Hench noir thriller novel about the prison-tech industry. FIRST DRAFT COMPLETE, WAITING FOR EDITORIAL REVIEW

  • Vigilant, Little Brother short story about remote invigilation. ON SUBMISSION

  • Moral Hazard, a short story for MIT Tech Review's 12 Tomorrows. FIRST DRAFT COMPLETE, ACCEPTED FOR PUBLICATION

  • Spill, a Little Brother short story about pipeline protests. ON SUBMISSION

Latest podcast: How To Make a Child-Safe TikTok

Upcoming appearances:

Recent appearances:

Latest books:

Upcoming books:

  • Red Team Blues: "A grabby, compulsive thriller that will leave you knowing more about how the world works than you did before." Tor Books, April 2023

  • The Internet Con: A nonfiction book about interoperability and Big Tech, Verso, September 2023

  • The Lost Cause: a post-Green New Deal eco-topian novel about truth and reconciliation with white nationalist militias, Tor Books, November 2023

This work – excluding any serialized fiction – is licensed under a Creative Commons Attribution 4.0 license. That means you can use it any way you like, including commercially, provided that you attribute it to me, Cory Doctorow, and include a link to

The excerpt from Red Team Blues in this edition is all rights reserved.

Quotations and images are not included in this license; they are included either under a limitation or exception to copyright, or on the basis of a separate license. Please exercise caution.

How to get Pluralistic:

Blog (no ads, tracking, or data-collection):

Newsletter (no ads, tracking, or data-collection):

Mastodon (no ads, tracking, or data-collection):

Medium (no ads, paywalled):

(Latest Medium column: "A Collective Bargain: Workplace democracy is a training ground for true national democracy

Twitter (mass-scale, unrestricted, third-party surveillance and advertising):

Tumblr (mass-scale, unrestricted, third-party surveillance and advertising):

"When life gives you SARS, you make sarsaparilla" -Joey "Accordion Guy" DeVilla