
What if debit cards could pay for purchases by selling securities? - JumpCrisscross
http://jpkoning.blogspot.com/2019/12/buying-coffee-with-tesla-shares.html
======
junar
* Reporting sales of securities on your tax return is tedious. Reporting fractional shares and wash sales (which are likely with the proposed scheme) is even more tedious.

* Credit cards exist. If you're wealthy enough to have taxable investments, your credit is probably good enough for credit card rewards.

* From a behavioral finance standpoint, mixing long-term investments and short-term spending is probably not a good idea.

~~~
JumpCrisscross
> _Credit cards exist. If you 're wealthy enough to have taxable investments,
> your credit is probably good enough for credit card rewards._

Replicating this would involve having little to no cash, spending on a card,
and then liquidating investments to pay off the debt. Which is similar to how
most wealthy persons manage their consumption.

Of course, this requires having access to credit, assets, and money transfer
services. Broadening access to that isn't necessarily a bad idea.

~~~
arcticbull
> Which is similar to how most wealthy persons manage their consumption.

That's not really true. Wealthy people know not to lose their principal. They
do this by borrowing either unsecured or on margin against their assets, the
using dividends and interest to pay off their spending leaving the assets
themselves untouched. Doing this in a way that leads to increased net worth
requires a cushion.

------
frogpelt
So, now instead of paying 5% sales tax on your Starbuck purchase you can also
pay 15% capital gains tax for realized gains.

If you're going to pay it anyway it won't matter but it would really stink to
pay $1,000 worth of stock on a shopping spree, plus $150 capital gains tax and
then that stock drop 25% in value the following month.

~~~
usefulcat
I thought you said capital gains was "for realized gains"? In which case $1000
of stock can't have $1000 of realized gains unless you paid $0 for it
initially.. in which case, I'd say the resulting $150 tax bill falls into the
category of "good problems to have".

Edit: unless perhaps you're assuming that the $1000 you spent is considered to
have come entirely from realized gains on what is actually a much larger
position? If so then I can see your point.

------
PascLeRasc
Here's a free fintech idea - a credit card that instead of 1-2% cashback, buys
you 1-2% of your purchase's stock, i.e. a $5 Starbucks coffee gets you $0.10
worth of $SBUX stock. I'm really curious how a widespread use of this would
influence stock prices.

~~~
wefarrell
That is a neat idea, and it's something that companies would absolutely get on
board with and offer rates higher than 1-2%, especially if there were a
minimum investing period of a year.

------
wefarrell
This article was clearly written by someone that has not been investing long
enough to encounter a bear market.

"Why do people prefer to pay for things using stable instruments rather than
volatile ones like Tesla shares? My guess is that it has something to do with
FOMO."

Or maybe it's a terrible idea to have people paying for their groceries and
rent with assets that have the possibility of tanking 50% in a matter of
weeks. If this feature would have existed in 2008 there would surely be
regulation in place to prevent it today.

~~~
zozbot234
> This article was clearly written by someone that has not been investing long
> enough to encounter a bear market.

This, so obvious. Most people actually _want_ to keep some fraction of their
wealth in safe, liquid assets, it's just the sensible thing to do. So it's not
clear to me what they would gain by getting rid of their ordinary checking
accounts. Cash is king anyway.

------
Animats
That's a great way to go broke fast.

------
perl4ever
"a debit card purchase can only proceed if there are uninvested cash balances
in the linked-to account"

Or, bear with me, what if there was a credit line secured by the stocks in the
account? Then you wouldn't have to sell anything! But to market it, you'd have
to give it a catchy name. Something... _edgy_ , but unfortunately, there's
already something called "Merrill Edge" so, I dunno.

------
lawrenceyan
I imagine this is exactly the kind of thing Robinhood is trying to implement
for its current user base.

~~~
arcticbull
This is exactly what Interactive Brokers offers today, wherein they issue you
a debit card backed by the cash value in your account, and once that's
exhausted, by the margin available. Instead of selling securities to pay for
your purchases, you can borrow against them (to within your personal risk
tolerance) at a tax-deductible rate of 3.05% for the first 100K and 2.55% for
the next 900K.

~~~
zrail
> tax deductible

Ehhhh be careful. Margin interest in the US is tax deductible only to the
extent that you used the margin loan to buy investment assets. If you use
margin to buy a share of Starbucks, great. If you use it to buy a coffee,
you’re out of luck.

~~~
arcticbull
Conceptually, however, if you were to sell a share of Starbucks, use the
proceeds to buy a coffee, and then borrow against your margin to restore your
position, then just borrowing against margin to buy coffee is net-net the same
thing. It would even result in a wash-sale.

------
cabaalis
Aren't stocks worth more than their instantaneous value? I.E. I expect the
value of stock A to grow at a better rate over time than stock B. If this type
of thing ever comes about, I'd be very interested in how to control what is
sold to cover a transaction.

~~~
russell_h
Not really. The instantaneous value of a stock is established by buyers and
sellers, both of whom are pricing in expected future performance.

Maybe what you're getting at is that in this case the seller has no
opportunity to set an asking price, and is simply accepting the current market
value? If this really took off that would be an issue, but I can't see why
this would take off.

------
daxorid
This already happens. Interactive Brokers, for instance, will issue you a
debit card that charges against your margin account. You can choose to cover
the margin later by closing positions, or use it like a credit card and pay
interest on the margin balance.

------
gwbas1c
> maybe some sort of hidden cost that makes it too expensive

TLDR: Don't confuse investments with pocket money. The reason why there is
some friction to selling stock is because the owner and buyer need to decide
what the value of that stock is. A point-of-sale transaction is a poor place
to determine the value of a stock.

(Long answer)

Because then the question is, who are they selling the stock to?

Many years ago, I interviewed with a company that described an elaborate
scheme to reduce the cost of trading stock. Basically, if you're a website
where people manage their stock portfolio, you can save on transaction fees by
keeping as many trades as possible among your users. As far as the stock
market is concerned, no sale occurred.

In this case, the only way to make it work is if the credit card has a whole
bunch of buyers lined up for all of the various stocks that are sold whenever
the card is used; AND is willing to float about 0.753782 shares of Tesla. This
way they can let you sell 0.0001 share to pay for your stick of gum without
them incurring the transaction cost of a share trade.

The problem is that, when you invest in something, you need to actively decide
when to buy, hold, and sell. If you had such a system, you would need to tell
it that you want to sell your Tesla when you buy coffee, but hold your Apple.
(Otherwise, you'd want to back it by a mutual or index fund, or ETF.)

Or, another way to do it would be to have a card for each of your investments,
and you actively choose which card you use at the point of sale.

(IMO, it's easier just to sell an investment when you pay your credit card
bill.)

------
thimkerbell
what could possibly go wrong...

------
jostmey
Sign me up. I want to be paid _in stock_ so I can avoid income tax thereby
paying less than my share in taxes like many overly wealth families in the
United States

~~~
rleahy22
If you're using stocks to back your debit card purchases then you would be
realizing gains incredibly frequently and therefore likely subjected to short
term capital gains, which are taxed at normal income tax rates. You would not
see a benefit in taxes in this scenario.

------
account73466
Long-term investing in stocks is a well-known way to get rich.

If median income people will keep all their money in stocks, then things may
change quite drastically. I am wondering if this would have any power to
affect the inequality gap.

As the author mentions, there is some similarity to crypto. For instance, one
could use crypto to pay for things but it is infeasible in practice because in
the US you would have to pay taxes on every buy trade.

~~~
segfaultbuserr
> _Investing in stocks is a well-known way to get rich._

Really? Buying high and selling low is a time-honored way of losing money.

~~~
account73466
Of course, I am not talking about WSB like "investing". Long-term investments
is basically 8% per year when holding long-term (e.g., more than 10 years). In
other words, your capital doubles every 10 years. Inflation is slower than
that.

~~~
whiddershins
8% is a very high estimate. I go with 4, myself.

~~~
icelancer
You are being downvoted for some unknown reason. 8% is a high estimate and
people simply averaging the past and coming up with that number as a
reasonable predictor of the future are the ones slamming the downvote button
in hopes that you are wrong.

1989-2019 with dividends reinvested and inflation controlled show a return of
7.3% in the S&P 500 index. But 1959-1989 with the same parameters shows a
return of 4.96% by just moving the time period back 30 years.

Arbitrary endpoints can make you justify anything, including double digit
returns. But people who are saving money in the equities market that gets ever
more crowded with index funds and ever more efficient should probably not
count on 7-8% returns as the canonical amount they're getting back. They
should plan on 5% or lower and be happy with higher returns if they come.

~~~
account73466
7-8% is not an arbitrary number and the reason why 1959-1989 is different is
because the % of money printed was different in that period. Currently, we are
doubling money supply every 10 years, therefore one should ok to expect 2x in
stocks because there is no other significant place for money to go to.

~~~
icelancer
Yeah? You feel confident that is going to continue for 30 years for sure?

~~~
account73466
Not necessarily only US stocks but printed money have to go somewhere and they
will be printed as the only pacific way to nullify previous debt.

