Unrealized gains taxes are a pointless hassle. Much better ways to tax the rich
noahpinion.blog
noahpinion.blog
1. Taxing truly unrealized gains
2. Taxing mechanisms people use to get around gains taxes
The main loophole at the moment is the loan loophole: the rich get a loan against their unrealized gains. Then they can spend their unrealized gains without paying taxes on the gains. Closing this loophole is a really good idea, but that's all it is, it's closing a loophole. Calling it a tax on unrealized gains is counter-productive. You'll get much more support if you just call it "closing a loophole". Taking a loan against a gain and other mechanisms of avoiding taxes should be treated as a deemed disposition.
Require a reporting of all liquid cash, property of substantive (resellable) value, and 'investments' of any sort. Liabilities could also be considered for a literal Net Worth tax.
In that evaluation the 'self loan' loophole should equal out to cash on hand / value and also an unpaid liability.
Here's an actual quote, not a made up sarcastic one
"Then Jesus said to his disciples, “Truly I tell you, it is hard for someone who is rich to enter the kingdom of heaven. 24 Again I tell you, it is easier for a camel to go through the eye of a needle than for someone who is rich to enter the kingdom of God.”
and that the church itself runs one of the biggest "redistribution schemes"
And once again, various Christian churches' tithe and charity systems are voluntary, not enforced by state violence.
But in your world, does the govt use violence to stop people from doing what they want? For enforcing things like labor contracts? (a made up legal fiction that can only exist in the context of a state)
If no: I commend you for imagining a world free from state violence. I don't have the vision for it myself but I can respect that.
if yes: 1. Who funds the police, & 2. Why is violence legal only when done by the rich?
Who benefits from having a well educated society? Everyone.
Who benefits from having a healthy society? Everyone.
Who benefits from having well maintained infrastructure? Everyone.
Who benefits from social safety nets, providing a soft landing in case of illness, failure at a business endeavour, etc.? Everyone.
Your view that the state is only using taxes to help the poor is absurd, a well running government benefits a whole society.
Corporations themselves are a legal fiction made up by the state. Its incredibly fair to tax for this and Could Not Possibly work any other way.
And on top of that, come on: look at https://mkorostoff.github.io/1-pixel-wealth/?v=3 and tell me that having hundreds of billions of dollars isn't greedy. 10 million (ie. thirty thousand times less) and you can retire in luxury.
Unfortunately the rest you likely have completely misunderstood. fwiw you visualization is very silly so much of reality makes no sense on linear scales, I suggest you use logarithmic scales and it all makes perfect sense. Unless a crony capitalist has corrupted the state to gain unfair advantage, has monopoly power, or is providing unnecessary services or providing weapons for war and embezzling public funds, then when they are successful they earned their “unearned” income in capital gains by providing a valuable service to the society. The impulse to strike them down and steal their capital is frankly disgusting and embarrassing. Nothing but Envy masquerading as Empathy!
& Also: why is it necessarily true that they 'earned' their 'unearned' income. This is going from relative fact to opinion here "how does the enocomy work" to the squishier "what does it mean to earn something", but when I put my $$ in an index fund and wake up next month with more money than I did before, it doesn't really feel earned to me.
But its not like that money is from choosing wisely what to invest in and taking on risk, I'm literally putting it all into index funds its dead simple. The only trick is to have money.
I have no problem with the government deciding that this is unfair. Its not fair that I get free money for having money already and other people don't.
It’s incredible how our education systems fail to teach the most basic economic realities to people. Capital gains result from allocating capital wisely and taking massive risk. This actually makes them very well “earned” in the one system that is most responsibly for the improvement of the human condition than any other system ever conceived by humans - hint: because it’s organic and natural!
In contrast your socialist nonsense is an ideology based on Envy masquerading as Empathy. It is responsible for the most death and destruction by any system conceived by humans - hint: it’s because it’s evil and artificial! To attempt to steal from and punish the very capitalists responsible for lifting humanity up and forward due to Sloth and Envy is truly disgusting!
It’s very interesting that extensive propaganda has somehow convinced newer generations that libertarian capitalism is actually anarchy, which it is absolutely not, if fact it’s not even related. Liberalism in the classic sense, and therefore libertarian capitalism, requires a strict government enforcement of property rights, individual rights, rule of law, and (extremely important!) to it’s health functioning a well regulated markets free from corruption! anarchy and oligarchy have no relation to capitalism! You are confused my dear socialist.
Please help yourselves and learn the truth. Don’t live your lives consumed by the evils of Envy and Sloth!
https://iea.org.uk/wp-content/uploads/2019/02/Niemietz-Socia...
You see there is nothing more honorable than risking what you have for a better future for yourself and others. Capitalists are the actual heroes in the world. Socialist governments the single biggest evil.
Capitalism isn’t an intuitive concept and that’s caused by our evolutionary past, much like our desire for sugar and fats cause us health problems, our evolutionary past with Envy is making us sick, where it once made small groups perform better and survive longer. In a tribal setting Envy encourages the middle of the group to reach towards the accomplishments of the best performers. Unfortunately in a large scale society the middle and bottom of the group can’t conceive of how to reach the top performers and can only think of cutting them down resorting to theft which lowers overall performance.
Some insightful quotes to help:
"Socialism is an alternative to capitalism as potassium cyanide is an alternative to water."
"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."
"The society that puts equality before freedom will end up with neither. The society that puts freedom before equality will end up with a great measure of both."
"The smallest minority on earth is the individual. Those who deny individual rights cannot claim to be defenders of minorities."
"It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest."
“The case for capitalism is counterintuitive: to most of us, capitalism simply feels wrong. Socialism, in contrast, chimes with our moral intuitions. Socialism simply feels right. Being a socialist is a 'default opinion', which comes easily and naturally to us. Appreciating the benefits of a market economy, in contrast, takes some intellectual self-discipline. Even prominent free-market intellectuals, such as Milton Friedman and F. A. Hayek did not start their careers as free marketeers. ”
Now we have a serious conundrum. If words can only have a single meaning regardless of context, surely we need some sort of centralized authority to manage this authoritative dictionary. Who should that be?
Unconditional free speech solves it. The IRS can call it want they want and I can say they are idiots and evil. As long as we are allowed to speak truth then there is hope.
The ministry of truth will bring nothing but death and destruction. You are forewarned.
We have the liberty to assign whatever meaning we want to words, but at the same time we need to come to agreements on what those words mean to be able to communicate effectively. In the US, laws almost always have a table of word definitions at the beginning. Some of them are longer than the actual law!
It's almost paradoxical to rail against the IRS text as socialist propaganda. You are imposing your definition of "earned" on everyone, but the US government is saying "you will use the English language however you wish, but just to be clear, when you read this law (and only when you read this law) this is how to interpret the words"
I think we agree with each other quite a bit :)
The only loophole is stepped-up basis on death. That is where the tax is erased. Fix that and the buy-borrow-die strategy doesn't work. "Die" is an essential part of the strategy.
This kind of thing became popular in the last decade because interest rates were near-zero, but it makes a lot less sense in today's macro climate. A margin loan today is a much riskier, more expensive proposition. It's not like before where you could get one with a 3% interest rate.
Moreover, the progressive pearl-clutching about margin loans overlooks the flip side: the margin call. Yes, it's a great strategy for avoiding some taxes, but it's not like it's zero-risk. While trying to avoid some taxes, you can wind up losing a big chunk of your holdings because the market had a bad week.
Maybe it's appropriate to put a reasonable limit on the total debt an individual can take on against their capital holdings or something, but if you've got a portfolio that you think will grow at 15% YoY, and you want to give it the opportunity to do that while getting some cash in the short term, I don't see the problem if there's a financial institution willing to make that loan.
The people doing buy-borrow-die are not just doing it on margin. They have special arrangements with a bank.
Also, if you are able to beat interest rates with your investment, the government wins too. The tax liability grows at the same rate. Faster, actually, since the gain becomes a larger percentage of the total. You are not cheating the government out of anything. Quite the opposite.
The last time this came up, it was a link to someone posting on reddit basically claiming they were a $2,500 per hour lawyer setting this up. The basic idea was that there were lenders giving multi-decade loans at a tiny interest rate (only payable upon death with also sharing a % share of the gains).
Maybe there are lenders who don't understand the time value of money, but no one has actually provided any statistics showing this is actually a common loophole.
According to this: https://finance.yahoo.com/news/jeff-bezos-sell-5-billion-185... Bezos has sold around $13.4 billion in stock in 2024. If he could easily avoid millions (maybe billions) of dollars of capital gains tax by this one simple trick, why didn't he?
Buy-borrow-die only makes sense if you are super wealthy (like $100m+) and don't want to touch the money while you are alive, but you want to maximize how much you pass on to your family after you die (when stepped-up basis kicks in to erase the capital gains tax). It's way overblown; it's really not something most rich people are going to do. But I would be in favor of eliminating stepped-up basis on death to get rid of it.
Especially if the loan is just a fraction of your wealth and you have a good history, the bank would probably agree to grant you the loan without real guarantee.
Is securing a college loan?
Is securing a car loan?
What's different about the case for stock?
The house, future earnings, and car are different sorts of collateral. If stock is different materially, then is margin trading a taxable event?
Should municipalities incur income when they issue tax-backed bonds? Those tax-backed bonds have stock-like collateral.
For all everyone loves to hate on borrow-die strategies, I have never seen anyone quantify the tax revenue "lost" to the "loophole".
The actual loophole is the estate tax not applying to most people. Tax estates from $1 onward. That'll raise real funds and is arguably universally fair. Or, tax no estates which is also arguably fair. Either way reduces distortions in the tax code.
As the article points out, Harris's proposal would only kick in at $100M. I don't see how anyone should be against it.
It implies the money is destroyed by taxation. In reality that money would go towards relieving the governments need to collect other tax revenues. So for example you could increase the standard deduction. Now everyone pays less tax and can either contribute more to their 401k (boosting stock values) or buying more things (boosting stock values). If you want to say the government is incompetent and will waste the money, that doesn't apply here because it applies to every tax, not specifically this one.
Value is destroyed by taxation, money is just a proxy. We spend on government because there are things we need that only government can do. Wealth transfer is not one of them.
Not sure if some of you know how bad things are for the less well-off in the world right now but they are actually fucking hellishly bad. We're on the brink of a recession if we're not already in one.
Do you mean "They already don't invest"?
I'm confused. Then how can they have unrealized gains if they're not investing? Aren't we talking about gains coming from investment?
If the rich are not investing then there are no unrealized gains and so they won't pay any tax under the proposed law and there are no problems in the first place.
Not everything is a conspiracy.
If the problem is that some people can leverage the unrealized gains and buy stuff with that, wouldn't the solution be to apply the taxation when the transaction happens?
If you're just owning unrealized gains as an abstract number you don't get taxed. If you're using them as collateral for an acquisition or a loan then it can be made the case that it's tax evasion and treated within the legal framework of tax evasion.
EDIT: for Musk if would be hard to make the case that he was just "moving investments from Tesla to Twitter" after going public to state his reasons for acquiring Twitter and that he didn't care if it made money or not but he wanted to "fix free speech" or whatnot. That should be a clear case where he's doing extracting value from his unrealized and gains and thus making them realized.
You can also make such law apply only to people with over $100M if you want to avoid having millions of tax evasion cases clogging the system
Like, we're giving them cake after they've already eaten their cake.
>...Although the AMT was originally enacted to target 155 high-income households, it grew to affect 5.2 million taxpayers each year by 2017, raising $36.2 billion, or 2.4% of federal income tax revenue. The passage of the TCJA for tax year 2018, reduced the affected number to about 0.1% of all taxpayers. This number is expected to rise again in 2026 with the expiry of the individual provisions of the TCJA.
https://en.wikipedia.org/wiki/Alternative_minimum_tax#:~:tex....
The more principled stance here, is "What value are shareholders providing to companies whose shares they hold?" Like, why do I care if we tax you based on your holdings in a space that has historically been used to dodge taxes? Especially when I think the good of taxing the ultrawealthy and subsequently anyone making a lot of untaxed gains through dubious avenues (making building ultrawealth harder) far outweigh the negative consequences of taxing more middle-class folks who happen to have stock.
Like, if the concept of a 100-millionaire goes away, then we necessarily strengthen people with less wealth (middle class). And before anyone calls this "class warfare", it's definitely class warfare, just currently the ultra-wealthy are winning.
No, what I said was:
>>If the government puts in the effort to develop systems to track/process/etc a new kind of tax like this, no one should pretend it will only ever be used agains the ultra wealthy. If anyone doubts this, you need only look at the Alternative Minimum Tax:
>...far outweigh the negative consequences of taxing more middle-class folks who happen to have stock.
The older I get the more I realize just how envy-driven people can be.
I would be taxed more according to what you're saying, and I'm still advocating for it.
I recognize that the benefit to society of having better distribution of wealth far outweighs any potential cost to myself in the scenario where this gets expanded.
Seems much more straightforward than faffing about with unrealised gains.
In France we had a wealth tax but only for people who owned over 1 300 000 € in wealth. Had because Macron stopped it because apparently it would make the rich leave the country which was pretty stupid since the first version of this tax was from 1945 and France is known to host a lot of ultra rich people.
We can 100% safely assume it just an election talking point, and the final law (if any) will be completely useless.
The problem is not "those evil evil rich people are not taxed enough". The problem is "extreme wealth is self-perpetuating, regardless of income tax rates". Raising marginal income tax rates for the rich, raising capital gains tax rates, etc., does not solve the problem, even though it looks similar if you squint a bit, or listen to commentators who conflate wealth and income.
It's a tax on money that doesn't actually exist yet, and may never exist if the stock price goes back down before you sell it. This makes investing too risky so the wealthy are going to find other ways to handle their wealth.
>But then some wonky progressive intellectuals got really upset over the fact that some rich people seem to be getting richer without paying any taxes at all. If the value of your stock goes up, you don’t have to pay capital gains taxes until you sell the stock. So all the rich people in America are sitting there, getting richer on paper year after year, without paying a dime in taxes (until some unspecified future date). That’s the way things have always worked — and the way things work in every other country — but if you’re a progressive intellectual who spends a lot of time thinking about the wealth inequality numbers, it seems quite unfair.
And no, you can't get around the obvious issues with the new tax by only applying it to people with assets that are easy to valuate. "If you only tax unrealized gains for people who have >80% of their wealth in liquid assets, the super-rich will just go around buying up land until 20.01% of their wealth is in land"
No, only until every last tiny scrap of land is owned by the super-rich. Capital accretion without any occasional catastrophic reset makes that only a matter of time.
How long? Months? Years? Decades? I'd be happy to bet money on this if you have a serious prediction
https://youtu.be/CkJxUR9Fc9s?si=QZzK9OjLWuLgR-65
The same argument and much more “fairness” as a principle
Think about it. "Rich people would have to tank the market yearly just to pay their taxes." Except they wouldn't do that. They'd store the tax rate on their expected gain in dollars. That puts a significant demand on USD. Every year, spending a portion of their revenue by parking it in a bank waiting for Jan 1st. That's what it is about.
Steven Brust says: Every law is an opportunity