Fair enough - however, what would the equivalent of this look like for invested assets? We are basically forced to sell to cover every year to pay taxes on accrued value?
Of course, there's always the problem that a lot of nominal asset appreciation is due to inflation.
You then have to pay tax on the $2k gain. You've lost purchasing power. Let's say your balance is now $101,800.
If you looked at this as monetary policy (rather than tax policy), wouldn't this essentially be a negative interest rate? Over time, wouldn't inflation rise exponentially?
Now, suppose the ETF tries to pace inflation + tax. Where does this extra money come from? Debt? Thus more inflation.
I find it interesting that the poster from Denmark considers it no big deal; Denmark has had negative interest rates for several years. That may make sense in a small, aging country that needs to stave off deflation, but the US currently has the opposite problem - inflation. Wouldn't a tax on inflationary "gains" send it into hyperdrive?
On a practical level, if this was implemented, I am sure the market would quickly create funds that payed out at exactly the right level to fund this. Here in Denmark, ETF's are always taxed this way and any losses can be carried forward.
The one area where this can get problematic is things like a a big family business that is not providing enough profit to pay the tax. Such a business would end up getting liquidated, which makes sense from a free market perspective, but would make for some great "taxman killed family business"-headlines.