For me, it makes a lot more sense to tax realized profit, or better yet consumption, than wealth itself.
I don't think it is desirable to force realization just to increase tax revenue.
It is true that buybacks are more tax efficient than dividends, which is why companies generally do buybacks instead of dividends.
The US tax on capital gains is definitely a mess though.
Let's take someone with a 53% marginal income tax, living in NYC. The person has stock with a basis of $0.0 with a current value of $10, and has held the stock for less than a year (short term capital gains = ordinary income rates). Separately, they have $1,000,000 of income.
Scenario 1) Donating the stock would produce a $10 tax deduction, worth $5.3.
Scenario 2) Selling the stock would produce $10 of returns - $5.3 in income tax = $4.7
In this scenario, donating the stock produces higher returns compared selling the stock. It's a fairly obtuse scenario, since it's rare for the cost-basis to be so low, time-span to be so short, and to have a good use for a tax deduction. It becomes much more likely when a completely illiquid & price inflated stock is donated. If a large chunk of illiquid stock is sold, it'll crash. But donating an inflated chunk of stock would lock in the tax deduction.
Donating shares of a stock when a person knows insider information is called 'insider giving', and is highly prevalent & largely unenforced. https://dlj.law.duke.edu/article/insider-giving-avci-vol71-i....
Obviously the latter leans towards tax evasion, but that's exactly the point - stock buybacks aren't necessarily tax evasion but they can certainly assist in it.
They can be spent if you have a low interest LOC at a bank backed by your assets like stocks.
For an example of how much the IRS theoretically cares about not being able to kick income down the road - basically the entirety of retirement savings regulations revolve around the controlled ability to do just that.
Why not tax all of that simultaneously? That's what the Dutch do.
> I don't think it is desirable to force realization just to increase tax revenue.
And yet various governments are doing or are planning exactly that.
Do you have a source?
I wasn't aware of any western countries which have wealth taxes, but I was surprised to find that Norway, Spain, and Switzerland do have some.
https://taxfoundation.org/net-wealth-tax-europe-2022/#:~:tex....
Summary: https://en.wikipedia.org/wiki/Taxation_in_the_Netherlands#Bo...
https://www.belastingdienst.nl/wps/wcm/connect/en/income-in-...
See my reply above.
“In 2001, the legislature assumed that everyone could easily earn a 4% return on their assets in Box 3 – regardless of how they were invested – without taking any risk, but this has certainly not been the case since 2008. Savings rates have yielded much less interest, as have bonds, with interest rates as low as 0%. At the moment, we’re even seeing negative interest rates. But the legislature never adjusted that assumed 4% return. This resulted in a situation where, for many years, the wealth tax people paid far exceeded their actual income from wealth"
The article you linked to refers to a recent court ruling against that system. (A bunched of pissed citizens sued the government because interest saving rates have been 0% or even negative for many years now.) The government is now scrambling to update the tax code, but AFAIK no change has been implemented yet. Last year's net wealth was still taxed at assumed (rather than realized) investment returns in this years income tax assesment.
It isn't. Under the current systen they make bo distinction, they just look at total worth per the market value. They treat 200k in savings the same as 200k in stocks.
https://home.kpmg/us/en/home/insights/2022/05/tnf-netherland...
"The box 3 tax rate is assessed against a hypothetical yield. You are not taxed for capital gains or actual rental income. Instead, the Dutch tax office assumes that you enjoy a yield of up to 5.69% over your total asset value, irrespective if any actual gains are higher or lower(!)."
Note that actual savings interest rates were close to zero or even negative.