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Comment by arrowsmith | Hacker News Reader

Hence why taxing "unrealised capital gains", as was floated during a recent election, is preposterous.

Indeed. However, it might make sense to change the definition of "realized". For example, if you use invested capital as collateral for a loan, we could require that it be valued at its basis cost. If you want to use the current market value of the stocks for loan collateral, then the IRS could recognize that the loan institution "realizes" that the stocks have appreciated in value and that the holder of the stocks agrees on the valuation. Multiple parties realized that the stock has a higher value today than its basis cost and expect it to presumably hold at least roughly that value for the duration of the loan.

Using the market value as collateral is in fact one way of realizing the gains: the investor is using the loan to convert their gains on invested capital into something usable. The capital gains tax would only be triggered when the investor utilizes a price other than their basis cost for their financial instruments.

This would probably not affect very many people: 99% of people don't use their retirement stocks as collateral on loans. It would fix the "Jeff Bezos et al. never pay taxes because they just keep getting bigger and bigger loans to pay off their loans" nonsense.

I don't think anyone in D.C. is currently proposing this, but I think it's a nifty idea. Even if the tax revenue generated is modest, it would boost the average citizens confidence that the system is working and not rigged/broken. And that is probably something worth pursuing these days given how dissatisfied voters have been for the past 9 years or so.

This would also apply to farmers when they take out a loan on their land, which they are also unlikely to ever realize, probably for longer period of time then Bezos, et al. I imagine most of rural America, once they figure this out would be very unhappy.

This might be the larger problem with this, since we probably, culturally at least, want more family owned farms and less corporate monster farms. This would not help the current trend away from family owned farms.

That said, it's an interesting proposition.

You can make a specific exception for loans taken out against the real assets of a business to fund capital improvements of that business. Rules would be similar to when you can deduct business expenses.

The concern is they would find an easy way around it.

You’re talking about behavior which is only taking place as a part of the tax dodge: taking out loans with stock as collateral.

Worst case scenario is the ultra-rich sell their stock bit by bit.

Or they donate it to charitable foundations they themselves manage.

Getting a margin loan with your stocks as collateral is a couple of clicks away in your brokerage.

Actually weird of so few people make use of it.

A home mortgage is a way better deal most of the time, which is what most people do. Better tax treatment, not callable, etc.

My house is already taxed on its current value rather than the value I purchased it for.

There are small edge cases for "the thing I own is worth a gazillion dollars now but I never want to sell it." Those edge cases already exist with the "I grew up in this house and I am emotionally attached to it" situation. It sure seems to me like people having unrealized gains in equities is, you know, vastly more common than finding out that the weird knick-knack that reminds you of your mom is actually a valuable collectable worth millions.

The difference is that land is not produced by anybody and taxing it comes with zero negative effects - it can't dampen production to raise costs, as usual with taxation, because land was produced by nobody. That differs from taxing wealth in things that are produced very differently, because that comes with side effects of discouraging production

Real estate is the edge case, because we don’t usually tax possessions.

Valuable possessions have a tendency to move to areas where ownership is not taxed.

Thus only unmovable assets are taxed simply for possession.

> “My house is already taxed on its current value rather than the value I purchased it for.”

That’s what California’s Prop 13 was supposed to address.

And this is a widely criticized policy that it not the norm across the rest of the country.

That shocked me when I moved to Nassau County, NY--that home owners did not have that protection. Nassau County is allegedly one of the most expensive tax counties in the country. There is definitely a retirement migration of blue collar residents who can't afford the property tax increases on their home when they retire. And in this perverse housing market, what was even 350k 10 years ago is 750k now (I know because I was looking). Forget what retirement age homeowners paid 30+ years ago.

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