But what's the alternative? Forcing people to sell? Forcing people to mark-to-market? There's no way to (fairly) tax capital gains except at the time of sale.
And it's not as if the current system is fair. You regularly see cases like that kid who won a trip to the ISS and had to give it up because it was valued at $X million dollars and to accept it he'd have to somehow pay hundreds of thousands of dollars in taxes. There's also the issues with stock options that come up here from time to time, where someone is owed millions in options that they can't actually use because they'd have to first pay a percentage of the value in taxes.
The Netherlands manages to do exactly that.
> There's no way to (fairly) tax capital gains
The fair part is that it's taxed - otherwise, it's unfair on people who are unable to exploit this tax avoidance.
We are talking about people with meaningful wealth. They can afford to be taxed without waiting for it to be perfectly 'fair'. Letting them pay $0 until its fair doesn't make sense.
It makes more sense to pay the expected amount, at least until you have the receipts.
Indeed, that's how my own labour income is already taxed. I first pay income tax for 2021 based on my income in 2020 - whenever it turns out to be too much, I can declare it later and will get a refund. But, I can't pay $0.
But....shares are useless until sold. Even if you have 1BN worth of shares it means nothing until you actually sell them/trade them? In fact, they could be worth nothing next week, how can you be taxing someone on a hypothetical sale value?
>>Indeed, that's how my own labour income is already taxed. I first pay income tax for 2021 based on my income in 2020 - whenever it turns out to be too much, I can declare it later and will get a refund. But, I can't pay $0.
That's literally insane. So you're basically giving your government a loan a year in advance? Why? Why not pay your income tax when you know - you get your income, like the rest of Europe does?
I think you're misunderstanding. The tax rate they are paying is estimated based on the previous year income (we'll actually it's a combination of present income and previous years) because the tax office can't know your exact income (and deductions) until the end of the year. So when you do your tax return at the end of the year you either get a refund or need to pay some more. I'm pretty sure that's how it works in most of Europe (at least in most of the countries I'm aware of). So there is no loan to the government, they still pay the tax as a rate on when the income comes in.
"Indeed, that's how my own labour income is already taxed. I first pay income tax for 2021 based on my income in 2020"
It sounds like they pre-pay tax for 2021 based on what they paid in 2020. If that's not how it works then I retract my statement.
I'm not super rich but if the government wanted to tax my shares, I'd pay the tax out of my income instead of buying more shares. I could probably pay a decent chunk of it out of dividends too, if I wasn't reinventing them.
Property tax here in Australia is based on hypothetical value, the sky doesn't fall.
Even if people have to sell some shares, I just don't care, it's not a big deal. Sell em.
The problem with the oft-cited options example is that tax is levied on gain of an asset that in fact cannot be legally sold at the time the tax is levied and is often enough worthless (or worth a lot less than at tax time) by the time it _can_ be legally sold.
Asset-based taxation on liquid assets with deep markets and clear prices is indeed probably fine in various ways. But if you tax other sorts of assets there are various problems, and if you only tax the easily-taxable ones people will turn to the other ones to avoid taxation...
The idea that someone should pay taxes on potential money is not a good one, IMO. I think there would be a lot of legitimate pushback, and if a plan was adopted anyway there would be serious political consequences.
You might be misunderstanding - this is literally how tax withholding works. You pay estimated taxes as you go through the year, and then file a return at the end of the year and settle up with the government to what your actual tax liability should be.
That's how most income taxes work in most countries.
To avoid a massive tax payment at the end of the year, you could elect how much tax would be deducted from your salary each month. The usual way to calculate it was based on last year's income. It wouldn't factor in all tax deductions so, at the end of the tax year, and after you'd filed the tedious and complicated tax return, you'd find that you'd overpaid. Better that than underpaying.
In the UK, usually your employer collects tax monthly. They calculate the amount to collect based on your current monthly salary projected forward and how much tax you've already paid. If there's a mismatch at the end of the year, the tax office uses a 'tax code' to adjust the amount to collect over the next 12 months.
Yeah, I have no idea why gambiting is not doing that.
The rules in the US is that your estimated tax payments have to cover the smaller of 90% of your current-year ongoing (quarterly) tax liability or 90% (sometimes 110% for high incomes, an there are other special rules for farmers/fishermen) of the previous-year tax liability.
So yes, you can make them based on last year's income as as safe harbor if you have no clue what's going on with your income this year for some reason. Or you can just make them based on this year's income as you go.
I think there are high profile cases of founders getting low interest loans with the shares as collateral. This allows spending of the money without losing control or paying taxes now.
So, no they are useful before they are sold.
Germany does something similar: https://de.wikipedia.org/wiki/Wegzugsbesteuerung (unfortunately only in German).
Basically your tax advisor agrees with the government on a "fair" valuation and you are taxed on a 'fictions sale' when you cease to be a German tax resident and hold more than 1% shares in a company.
This is clearly untrue. At least they have use in the ongoing option to sell. I can use them as collateral to borrow at least as much as, and probably a multiple of, their value.
If you genuinely think they are useless, please give me some. I will use them.
> how can you be taxing someone on a hypothetical sale value?
Since shares are fungible, the government could just apply the tax as a number of shares. Then nobody has to worry about defining a hypothetical value.
You can borrow cash against them, and live entirely on that cash for decades.
And I mean, if I borrow money to help me out until I get my paycheck, I don't pay the income tax on the borrowed money - I pay it when I get the paycheck.
I don’t see that holding up in court.
What is being proposed is to change the law. A court will absolutely uphold that law, once it is written. What it would do under current laws is irrelevant.
Of course, the assessor can't exactly predict the value of a commodity like a home with complete accuracy. Some people get undercharged and some get overcharged, this might even be a systemic thing. But as long as it's "good enough", then the tax works more or less how it should.
Even the SWP is cool with employee shares now
Being asked to pay tax on your wealth is not a judgement about your moral character.
We ask people to pay tax to benefit society, not because we hate them.
Given that shares are fungible, you could just give a percentage of your shares to the government as the tax/the government could or should accept this as your tax payment.
> You do realise that many employees on average wages do this.
I'd like to say almost none but I understand the median person the US holds a small amount of wealth. If there was a progressive wealth tax, you could take people with average wealth out of the requirement to pay.
And some countries think and I agree that people having a stake in your employer and in the economy through share ownership is a good thing.
I agree that you and me, and even my paper-millionaire neighbors and friends cannot afford to be taxed on their assets, but a billionaire can, even a paper billionaire can drum up the cash or debt when needed to pay taxes. They do it every day for their large purchases.
> Except the uber wealthy who can afford to lose money to pay taxes for the infrastructure that has enabled their explosive asset growth.
Federal income tax almost never gets used for infrastructure. Infrastructure is mostly built by state and local governments, which receive most of their income from sales tax and property tax, and other taxes, which are already almost entirely paid by businesses. So, they are already paying for the infrastructure that enabled their growth.
So much of the wealth on this planet relies on Governments for it to exist and to persist.
Nevertheless I totally agree some part of that 11% will benefit business and commerce. But it is still a terrible deal. In any other context no one would ever buy something with a 90% "commission".
So I did look up actual numbers and the numbers I saw were different to yours. In 2020 the percentage was 15% (721.5 billion for military of 4.79 trillion budget).
But the exact percentage isn't that important. I still don't get the 'not a great deal' part. It's not some good you could either buy from retailer X or brand Y. If no money is spent on military than the country is ripe for invasion, so it's either secure or it isn't. And it's not like we want the percent to be higher. Like we don't want to spend MORE than the Department of Defense thinks we need to secure the country. That's an even worse deal.
Even if you choose to move your assets/business to a country that spends a lot less on military, you're likely benefitting indirectly from how much the US spends on military (assuming it's an ally and the world is stable, that might not stay true in the next couple of decades).
Unless you're arguing to pay for a private security firm to secure your assets, then maybe you can pray we get to a Mad Max style future where it makes sense to do that.
Or you're suggesting it can be bypassed by buying cryptocurrency, which is secured by other means than government might. If that's the case then I'm on board with that thinking.
If your main argument is 'I want all of the money I spend in taxes to solely be spent on securing my assets, so reduce my taxes!' then that's ignoring the other government services those taxes provide.
The fact that a lot of unrelated money transits through Government to pay for social services is completely irrelevant to the point.
1. Maintaining a navy that reduces piracy enough to have global JIT delivery networks that reduce costs for corps
2. Protects corp interests abroad allowing a larger market and higher profits
3. Enforces regulations that attract a larger than otherwise likely share of people to put their money in the stock market, increasing the value of your equities.
The entire budget of #1 is about 3% of that, and #2 and #3 around 1%.
What a terrible deal.
https://en.m.wikipedia.org/wiki/List_of_countries_by_governm...
Yet property taxes are very common throughout the US. Would you make the same arguments to eliminate property taxes? If not, why are capital gains any different?
I suppose because property values are considered to be more stable than, say, GameStock puts. But you raise a good point, that what we're talking about (really) is a "how we should tax _wealth_" vs "how should we tax _capital gains_".
Capital gains clearly represent a change in your wealth, and are somewhat "income-like". But they also are a persistent thing that you are in control of until the time of sale, and are somewhat "property-like".
It seems plausible that we could come up with a reasonable-scheme for capital gains taxes that manages to accommodate both properties, but I think it'd take a fair amount of consideration to make sure that there aren't nasty edge cases, and the benefits outweigh the additional accounting.
You may have just solidified my opinion against property taxes :)
Seriously, evaluating and setting values for property takes a lot of resources at the city/county level... it would take a massive increase to properly evaluate wealth for taxation, because so much of it is completely intangible and abstract.
Unless you are a large corporation / billionaire yourself, in which case I apologize, yes it works for you.
However, when discussing the various symptoms of this fundamental malady, as we are ITT, it's often useful to take the marketing at its word. It would be nice if our IRS were created and operated in the interests of justice for the vast majority of Americans. Let's imagine how that might be, and see how far the actual falls short of the ideal. The quicker we see USA as it is rather than how it has been sold to us from birth, the quicker we'll figure out something else marginally less awful.
There are any number of principled reasons to oppose paying taxes to USA government, but "I'm rich and I can afford the lobbyists and tax attorneys to make the system work for me" is not among those.
For liquid investments that have a well-agreed-upon market value, that wouldn't be a problem above a moderate wealth threshold. In particular, it should be easy to obtain credit against these securities (if necessary/desired) to pay the tax bill.
The loans would be very secure, since by definition they would have appreciated more than the taxes owing. And if the current offsetting-loss notions are retained (e.g. losses can be carried back to offset prior gains), if the securities fall in value then the taxes paid would be refunded, providing another way to repay the loan.
In the meantime, you'd avoid a current inefficiency of the tax system that encourages people to hold on to subpar or undesirable investments to avoid realizing taxable gains. The entire cottage industry of deciding which investments are "tax efficient" and should be held in taxable versus tax-sheltered accounts should go away.
I’m not sure how you’d write a matching tax provision but there should be something. Maybe the answer is to rely more heavily on VATs as Europe does.
2. Isnt this unfairly in favor knowledge businesses where there is tremendous value but no real MtM? So a private accounting firm with lots of clients gets no real MtM while a farm with physical assets gets a high MtM that is taxed.
For example, let's say you own a car with an appraised value of $25,000—meaning that you could buy one similar to your for that price (more or less). So you declare the taxable value to be $25,000 and pay the corresponding tax, and then right before you leave for an extended road trip someone decides that they would rather have your vehicle than one from a dealer and makes you an offer for $25,000 which you cannot legally refuse. Now you're without a car and scrambling to buy a replacement and get it registered, insured, packed, and ready to leave on short notice. Your plans are disrupted and the new vehicle, while "equivalent" to the one you had before in terms of factory specs and general condition, just isn't the same as the one you had carefully maintained and customized to your liking.
In practice people would need to over-declare the value of any property they didn't want to sell, which effectively makes this a tax on how attached people are to specific items and not a tax on their "fair" market value. The situation becomes even worse if the owner has enemies willing to over-pay for the item purely out of spite.
One of the fundamental rights of ownership is the right to choose not to sell, no matter how much someone offers.
If we think that "everyone" will have to "overdeclare" in such fashion, then obviously the government is collecting more revenue than it intended and will lower the tax rates to compensate, so in the end, you'll pay the same dollar amount in tax on your $26,000 car as you would have on your $25,000 car.
So, such a system would work fine. Particularly for property taxes, which are currently the subject of much scamming (apartment buildings in NYC being valued at a few percent of their actual market value, for example).
If everyone over-declares by the same amount, sure. But not everyone will. It depends on how much attachment one has to a specific item, how much risk there is that someone will attempt to take it, and how painful or inconvenient it would be to lose it. And you're ignoring the point about being vulnerable to motivated individuals willing to pay above-market rates purely to cause trouble.
You get to declare a reasonable value, and if someone wants to buy, but you're not willing to sell at that time, the insurance company negotiates a substitute payment, and works that cost into your retention rider rate going forward.
Piss someone off? Maybe they'll just come in and buy your house. Cherished one of a kind item? Jeff Bezos likes it, so it's his now. Property developer wants to build something on your land? Get ready to move, no questions asked.
Any item must be purchased at a +30% premium over the recorded value with that extra 30% going to the state if a sale occurs. So if you did want to hold onto something, you would declare a higher value and get paid extra.
Inflation seems like a pretty efficient wealth tax… and if the money is distributed fairly as a UBI that would cancel out the benefits that the wealthy have vs regular people to protect against inflation.