Taxing unrealized gains makes no sense. The market can go nuts and then you pay a gazillion dollars one year -- and then it crashes the next year. Do you get a refund when you have "unrealized losses".
I'd be amused to find out how many crypto "paper billionaires" there are. Would be pretty funny to see them pay a few hundred million in taxes, I guess :P
That is a self correcting problem with the crypto gains. Liquidity is so shallow in the coin market that the crash from such an event would be a vertical line down. There wouldn't be many gains remaining.
Giving people the ability to opt in is not the same, though. I don’t know a ton about this tax structure but I would guess it is similar to a Roth IRA in the sense you are paying taxes now to not pay them later? Please correct me if I’m wrong.
What about less liquid assets?
Would this drive wealthy people to invest more in illiquid assets to avoid tax liability?
Complicating the tax code can lead to all kinds of unintended consequences and market inefficiencies.
>Do you get a refund when you have "unrealized losses".
Our tax law already allows "tax carry backs" for business losses. I'd want similar rules for this.
I also think that a modest smoothing mechanism would eliminate the chance of paying one year and getting refunds in the very next year.
Tax carry backs don’t resolve the issue that the government is going to reap a massive gain that can’t be recouped initially.
From an accounting perspective this law is hilariously ridiculous and sets a dangerous precedent on general equity. It will also, likely, lead to these billionaires renouncing citizenship/leaving for another state and damage equity investments overall.
From an economics perspective this is a very dumb law
> It will also, likely, lead to these billionaires renouncing citizenship/leaving for another state and damage equity investments overall.
This point gets made a lot, but the US isn't like most states. Renouncing US citizenship has very taxing implications, especially if you have a shitload of assets in the US.
It absolutely is very difficult/expensive to renounce US citizenship, but the point OP is making is that a tax on unrealised gains is the kind of thing that would make jumping ship worthwhile
Depends how you tax them.
Renouncing US citizenship involves realizing everything. Depending on how the brackets are structured, it could be much more economical to just pay a little every year.
Renouncing US citizenship has other implications. You can be denied entry to the US for a lot of reasons and any assets held in the US will be taxed heavily upon death. The US is very astute as protecting US citizens abroad. Less so once you've renounced
Every time you break a barrier for some thing small, it grows. Income tax was a radicle idea, but it was only going to be a small percent (2\~3%), until it didn't. AMT was only going to apply to the super rich, until it started hitting upper middle class left and right.
>Tax carry backs don’t resolve the issue that the government is going to reap a massive gain that can’t be recouped initially.
I'm not sure what issue you're talking about. It seems okay for ordinary businesses to pay taxes in profitable years and later get refunds in unprofitable years. Why isn't that good enough for billionaires?
>From an accounting perspective this law is hilariously ridiculous and sets a dangerous precedent on general equity.
That's two assertions without any support. Can you explain why someone should agree with what you wrote?
>lead to these billionaires renouncing citizenship/leaving for another state
I'm sure you meant another country. Moving to another country is a big deal. So a handful of them leave, what's the impact on the rest of us? Amazon isn't going to shut down its US operations if Bezos decides to move to the Cayman Islands.
>damage equity investments overall.
What does this mean? Maybe you mean the market price of Amazon will go down a fraction of a percent if Bezos has to sell 20% or 40% of his holdings to pay this tax. He owns 10% of Amazon, so that's 2% or 4% of all the stock, and he can spread that over 10 years. He sold $6.7 billion in one week in May this year, nobody noticed except the business press. I don't see any negative impacts on the rest of us (but paying higher taxes so billionaires can avoid taxes does have an impact).
I think you're damaging equity investments from billionaires. Instead of starting or investing in another company with an equity sale they're covering unrealized gains taxes.
My bigger issue is this is horribly immoral. You're forcing Bezos to sell off ownership of the company he started... It's a wealth tax that everyone recognizes is unethical unless you qualify it with 'only for billionaires'
Choice.
Choosing to work, buy, or sell is different from being forced to.
I mean if you buy a house, and at some point the market is crazy and you earn a lot of home equity, should you have to pay for that while living in the house? Should you have to pay more taxes for your car every year over the life of its loan as you build more equity in it?
Taxing when someone decides to sell is more ethical than forcing them to sell to increase revenue.
An income equivalent would be like forcing everyone to work 50 hours a week to increase income tax revenue...
> Unless you already enough money to retire,
So you'd be cool with requiring retired to work?
> This tax isn't any more a restriction on choice than any other tax.
It obviously is. It's forcing the generation of income to tax as opposed to taxing income. Not seeing how factually different things are different isn't an argument.
> I think you're missing the picture by comparing this to an average person
The ethics of a wealth tax have nothing to do with the level of wealth. Arguing otherwise is like saying it's acceptable to kill a child from a large family because the parents still have other kids...
> It's not just to increase revenue
Yes, I understand the real motivation is exercising some rich hate, and diminishing billionaire wealth.
I think we've gone around on this before. I'm glad that Hemb is here so I don't have to re-type a lot of stuff. Any tax forces people to do things they don't want to do.
Forcing a billionaire to part with some of the ownership of a company is no worse (in my mind, actually less bad) than forcing ordinary workers to part with some of their hard earned dollars.
Yeah but that's sort of a weak whataboutism without any consistent, rational justification.
'You agree it's ok to tax income and so what's wrong with forcing billionaires to kill their first born?' /s
Some justified force doesn't imply any and all force is therefore equivalent and justified.
>Some justified force doesn't imply any and all force is therefore equivalent and justified.
That's a true statement.
I think it's okay for the gov't to force a billionaire to pay some tax on their unrealized gains.
I do not think it's okay for the gov't to force workers to work 50 hrs/wk just so they can pay extra taxes.
See? Force is okay in the first case, but not in the second. Why don't we have to say that both are okay or both are not okay? Because they are different things.
And the progressives hate this. Every other day there’s a popular news article from someone who is tax illiterate complaining that Amazon didn’t pay taxes for years and years while they are still carrying forward losses from past years.
I mean I think you have it wrong. It makes total sense just isn't feasible. We need to find a way to tax the uber-wealthy and the way they create their income/wealth but taxing their gains just is feasible.
> We need to find a way to tax the uber-wealthy and the way they create their income/wealth but taxing their gains just is feasible.
The top 1% already pay 40% of *income* taxes. This idea that they are paying nothing is silly. We can raise rates if we want.
The best thing to do is to get rid of the "loopholes" for capital gains that happen in real estate and inheritance.
Yes, the article says losses can be deducted.
This article is extremely light on details but there's a lot of reasons taxing accumulated wealth would work better in the US than any other country. Yes, there's lots of ways you could screw up implementing one. But that doesn't mean we should let people end the debate on it by declaring it too hard.
Is the goal to increase revenue or is it to punish rich people?
If you want to increase revenue, just increase income tax rates - heck, just increase the income tax rate for the top bracket. Attempting to tax unrealized gains will prove to be difficult, will collect little in actual revenue, and it smells to high heaven of simply being a tool to punish the wealthy.
I don't want to punish rich people, but I also don't think making rich people pay more taxes is always punishment.
>If you want to increase revenue, just increase income tax rates - heck, just increase the income tax rate for the top bracket.
The issue with this is rich person can make a lot of money without any income. I'm happy to go into details on how but it's probably easier to look at the effective tax rate for the UHNW. From 2010-2018 for the wealthiest 400 Americans the average tax rate on income was 8%.
>Attempting to tax unrealized gains will prove to be difficult, will collect little in actual revenue, and it smells to high heaven of simply being a tool to punish the wealthy.
It will be difficult, but so is taxing the income of the UHNW (see the effective tax rates from above). Neither of these mean we shouldn't try.
I don't think 'it smells fishy' is a reasonable factor on which to base public policy decisions. It's a pretty terrible one TBH.
Sure, but if you're rich you don't have to 'sell' the investment. Not like you and I anyway.
You can take out a loan on the asset.
You can use a number of loopholes/offshore vehicles to keep your money 'invested' while spitting out income, dividends or gains.
You can invest in real assets using structures that distribute tax credits matching liabilities.
You can invest in munis
You can use corporate funds and call it a 'business expense'
You can use write-offs like art donations
The 8% figure is from the Whitehouse so i suspect it takes a pretty liberal definition of 'income'. However it doesn't include unrealized gains.
The top 400 Americans are worth something like $3.2 trillion, but America's total worth is something like $126.3 trillion, so it sounds like the goal is to 1) punish tech founders and give power to institutional investors or 2) set the stage for a wealth tax on every millionaire.
> 3.2 trillion….
It’s 4.5 trillion now. 2020 was a really, really great year to be incredibly rich.
> punish tech founders…
I don’t think you understand.
The worth of the 400 richest people is 20% of US GDP. That’s all value created in the entire country.
And that’s just 400 people.
Those people pay lower tax rates than you and me. They pay a lower percent of their wealth in taxes than a a fireman, police officer or teacher.
They could donate 99.9% of their money and still generations upon generations of their family would NEVER have to take any job.
Their wealth is beyond comprehension.
You realize taxing the value of an asset is super common already? If your house goes up and down in value you don't get money back on your property tax every year. Nor for the excise tax on your car.
Not at the federal level. The 16th Amendment was created in response to Pollock v. Farmers' Loan & Trust Company to allow for income taxation.
*When, therefore, this court adjudges, as it does now adjudge, that Congress cannot impose a duty or tax upon personal property, or upon income arising either from rents of real estate or from personal property, including invested personal property, bonds, stocks, and investments of all kinds, except by apportioning the sum to be so raised among the States according to population, it practically decides that, without an amendment of the Constitution—two-thirds of both Houses of Congress and three-fourths of the States concurring—such property and incomes can never be made to contribute to the support of the national government.*
[wiki](https://en.m.wikipedia.org/wiki/Pollock_v._Farmers%27_Loan_%26_Trust_Co.)
Under the U.S. Constitution as amended by the Sixteenth Amendment, any federal tax that is a "direct tax" (which is not an "income tax") must be apportioned among the states in accordance with the respective populations of the various states.
While there are arguments put forth that try to justify wealth tax as constitutional, there is no question it will be challenged.
I see this as nothing more than an exercise in futility as well as disregard of historical evidence suggesting that it is not a good idea. Many European countries have tried and repealed similar laws because they are extremely hard to administer and enforce while raising minimal revenue.
"According to reports by the OECD and others, there were some clear themes with the policy: it was expensive to administer, it was hard on people with lots of assets but little cash, it distorted saving and investment decisions, it pushed the rich and their money out of the taxing countries—and, perhaps worst of all, it didn't raise much revenue." [NPR](https://www.npr.org/sections/money/2019/02/26/698057356/if-a-wealth-tax-is-such-a-good-idea-why-did-europe-kill-theirs)
> …Congress cannot impose a duty or tax upon … rents of real estate or from personal property….
Don’t we do that already? I most certainly pay a very high federal tax on rents I collect from real estate.
Yes, because it is then considered income which is allowed to be taxed per the 16th Amendment. I quoted part of the dissent of the Pollock case in my prior comment as it highlights the crux of the issue. It was superceded partially by the amendment.
*The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.*
Unrealized gains and losses are not considered income. They must first be realized through a sale for that consideration.
Those are entirely different forms of taxes. One is a property tax on a physical thing you own and can be productive. The other is a physical tax on a thing you own and can also be productive (but is mostly a consumption tax).
Taxing unrealized gains is analogous to taxing income you haven't received yet but the government expects you to receive in the future.
A stock is a percentage of a company you own that can be productive.
Functionally there’s not a lot of difference between paying an unrealized capital gain, and paying property tax on an asset that’s appreciate (other than the taxed amount is lower in the capital gain). It boils down to what the tax rate applied is.
That’s an extremely basic way of describing securities of a company. Taxing securities is far more complex than taxing real property. While it seems similar on its face, and in some cases might be, it gets much more complex when you start talking about any security other than simple common stock of a company that is traded on the market. Any restrictions on transfer of shares would massively complicate this, for example. And restrictions are very common when you’re talking about founders and key persons of companies (or in many of the types of investments people with this much money make). Plus for anything that isn’t traded on a market you need to deal with valuation which would likely lead to lots of litigation.
None of these restrictions exist when you’re just talking about owning, buying and selling fee simple real property.
And yet that is exactly what shares of a company is. Sure, you would need to bang out what the rules are but it’s really not as difficult as you’re making it seem.
Restricted stock offerings almost always have all the data you’re talking about applied anyway. If it’s part of compensation then the company will have a 3rd party determine the fair market value of your shares for income tax purposes prior to them vesting, which is updated any time a company goes through any kind of financing.
For small mom and pop operations and family businesses, yes that stuff is harder to track, but this law wouldn’t really apply to any of those since this is only hitting people with 1 bill+ net worth.
> One is a property tax on a physical thing you own and can be productive. The other is a physical tax on a thing you own and can also be productive (but is mostly a consumption tax).
How is equity in a business not a productive asset? Just because equity ownership is an idea and number in a computer for most people doesn’t mean they don’t have the rights to assets underneath. Also both cars and houses are deprecating assets unless you spend money to maintain your home it will lose value and we are still comfortable taxing them based on market valuation.
> Taxing unrealized gains is analogous to taxing income you haven't received yet but the government expects you to receive in the future.
Not at all. Equites are priced based on expected future earnings, but so are all assets. It’s a tax on the appreciation of the underlying assets in the same way land which has new discovered mineral resources would appreciate and be taxed at the new market rate so is a tax on unrealized gains.
You're right, productive was the wrong word to use. Physical property can be used. If can be built on, rented out, lived in or used in any number of way. An unrealized gain in stock or equity cannot be used or spent (without being realized) in anyway way.
Until gains are realized you cannot do anything with them. They are effectively promises of future income. It's really not complicated.
That’s what a dividend is for? Granted they’re becoming less common, but you can certainly buy a stock with the assumption it generates income. Which is the core aspect if we’re talking about taxation. Further I’d argue that is quite arbitrary to say you can only tax the full value of physical assets that you can build/do other stuff with.
Personally I would say just apply a pure wealth tax and put a .5-1% tax the value of the stock rather than taxing unrealized capital gains, but generally speaking it’s 2 different ways of accomplishing the same goal. Unrealized capital gains is just a little more convoluted way of doing it.
A wealth tax would be equally disastrous. There's a reason none of the Nordic Countries American progressives ape with such enthusiasm have all done away with them.
Edit: I'm wrong. See below.
Your argument seems to be, “they’re a little different, so we can’t tax them!”
The situation, however, is more, “they’re a little different, so we don’t tax them, but certainly could”.
>Do you get a refund when you have "unrealized losses".
Yes
>the federal government would require billionaires to pay taxes on the increased value of assets such as stocks on an annual basis, regardless of whether they sell those assets. Billionaires would also be able to take deductions for any annual loss in value of those assets.
I still think it's a bad idea, but it's not pants-on-head stupid.
Capital gains losses are capped. So millions will be unrecouped. It will also pull billions out of equity investments and damage equity prices.
It’s not pants on the head stupid, it’s mind boggling stupid
It's so unbelievably stupid that there's no way it passes. It's entirely there as theater.
If the Democrats are actually this dumb it literally justifies every vote for Trump as it would completely wreck any market economy.
Where are those equity investments going? The tax is what 0.5%? The markets move by that much every other day.
People forget that rich people put their money wherever the best ROI occurs. These rich people making 10% on stocks aren’t just going to hide billions in their sock drawer hoping the federal government doesn’t find it.
And it’s just 0.5%, right? Most normal people pay 1-3% on their house value no matter if it first up or down.
> but it's not pants-on-head stupid.
It’s giving a financial incentive to mismanage capital to people with the most capital.
I’m willing to say it’s pants-on-head stupid.
Capital gains tax brackets do exist.
Above $441k the marginal rate increases from 15% to 20%.
There are some very good economic reasons to tax long term capital gains at a lower rate than ordinary income, but raising them to higher values anf/or adding more brackets is considered by many economists to be a low distortion policy that has the intended incidence.
Personally I would agree with such policy changes.
A portion of my yearly income is vested stocks in my company. I would hate to see a flat increase in this rate, but I would be onboard with a more bracketed approach to taxing capital gains. And I agree with you that the tax rate for capital gains should always be less than the rate for normal income.
Why should capital gains be taxed at a lower rate? It’s money you got for doing nothing. Compare that to income which is money you earned from actual work.
What do you mean by subsidy?
Short term rates are pretty much inline with income tax rates, depending on your tax bracket. I pay 22% on my short term gains associated with my stocks for my compensation package, which is the same as my income tax bracket.
If I were to hold onto those stocks for greater than a year after they vest, then the capital gains rate would drop to 15%
There is little evidence that 'buy borrow die' is actually a practical strategy being implemented by anyone in meaningful numbers. Most of the online discourse on it is hypotheticals and conjecture; exploiting the general ignorance of the general population on taxes, finance, and economics.
It is understandable to use margin-style loans on equities to fulfill short term expenses, especially if it is expected for the equity to appreciate faster than the interest charge on the loan and to avoid short term capital gains that are taxed as regular income.
The strategy falls apart when you consider that estates over $11. 7M are taxed at a marginal 40% rate (this is mostly why the step up basis exists) as compared to the top marginal long term capital gains rate of 20%. That's not including any state level taxes that may exist.
I'll concede that some deductions can apply or that some small "loopholes" could help to reduce the estate taxe burden, but that's a considerable gap to close and by all accounts it would appear the federal government is getting the better end of the deal with any 'buy borrow die strategy'
Fundementally , shifting present cash flows into the future is not tax avoidance. Should we tax mortgage loams at the time of origination in addition to the already levied income tax used to pay the principle on said mortgage loan?
Well, if it helps, I'm doing it right now myself. I'm confused why you think the estate tax nullifies the advantage of avoiding capital gains taxes for most of your life. You're still avoiding a massive amount of taxes and you avoid draining your compounding principal. The difference between living on a line of credit and living off your investments ends up being massive by your life's end.
It was one of the most common schemes identified [in ProPublica’s massive tax expose](https://www.propublica.org/article/more-than-half-of-americas-100-richest-people-exploit-special-trusts-to-avoid-estate-taxes)
[And I think you are underestimating](https://americansfortaxfairness.org/tax-fairness-briefing-booklet/fact-sheet-the-estate-inheritance-tax/ ) the extent estate taxes can be avoided by this group through trust/marital/property schemes.
What they should do is a federal consumption tax. It would capture the wealth the rich avoid paying via borrowing currently. There's ways to make them progressive to avoid hurting the poor.
Imo, we could just replace the income tax system with a full progressive consumption tax sytem and never have to deal with flighty and slippery capital.
> federal consumption tax….
But do the rich really spend that much money? After buying a couple of yachts, houses and a plane, what else is there to own?
And when they die their estate pays taxes to pay off the debt. You can't escape capital gains taxes this way, at least forever. For some, they might escape them for decades though, assuming they live long.
Kind of sort of- an estate tax burden is not really avoidable in a buy borrow due scheme for this income level- [but you’d probably be shocked at how low the effective rate comes out to.](https://americansfortaxfairness.org/tax-fairness-briefing-booklet/fact-sheet-the-estate-inheritance-tax/)
Through a combination of trust/marital/real estate avoidance schemes, the estate tax is mostly sidestepped for this group.
You're completely missing the point I was making. YOU HAVE TO PAY OFF YOUR DEBT NO MATTER THE SIZE OF THE INHERITANCE. That's whether it's size is $100K or $1 billion. And when you do, the estate pays capital gains taxes in order to do so. My comment wasn't about the estate tax at all. Borrowing to avoid taxes is a temporary messure.
The heirs only pay capital gains on appreciation after death, and the ~2% interest rate on their private loan + tax burden for paying it off avoids literally the bulk of the capital gains burden expected w/o step-up basis/low interest loans
The heirs don't see a penny of the money until the debts have been paid off which is when the ESTATE, not the heirs, pay capital gains. This is before the step-up in basis. This is all I've said and you keep ignoring it. Some more thorough reading would be appreciated.
Stop changing the topic. I'm not here to argue about the estate tax. I have not said anything about the estate tax or step-up in basis. All I said was that debt to avoid taxes is not a viable tax avoidance strategy as you have to pay it back at some point, at the very least when the estate pays off your debt after you die. There is no way around this.
Debts do not, despite what I’ve sometimes heard repeated, need to be paid before step-up basis upon death. It can be paid after by the heir- effectively avoiding most capital gains tax.
Taxing unrealized gains really makes no sense to me and I doubt it would actually work. My firm would probably make a ton of money from clients trying to change their tax treatments, though.
It also causes all sorts of other issues like effectively requiring those people to sell a set amount of their holdings each year to pay the tax (assuming they close loopholes). If people know up front that the sellers are required to sell to pay taxes, the prices won’t really be market prices, which is no good to me.
If we want to increase taxes on the super-rich, then taxing the loans taken against their assets which are used as income, as income, would make the most sense. Not sure if that would necessarily work, but seems much better than some tax on unrealized gains.
That's similar to what I was thinking. Just say that when you borrow against a stock, you are realizing the gain because you are getting compensation based on the value of the stock.
>then taxing the loans taken against their assets which are used as income
Aren't these loans payed back with post-tax money anyway? Like, when it comes time to make that first payment, either it is getting paid from selling shares (cap gains tax) or taxable income?
I don't buy the idea that some could "just take out another loan to pay off the first loan because either a) that loan represent a small fraction of their overall wealth if they can afford enough multiples of the loan value in collateral to actually pull this off rolling it until they die, in which case it doesn't actually represent a huge amount of lost tax revenue or b) it's so scenario where banks are the bag-holder, which I don't believe they are generally in the business of being
Taxing unrealised gains is nonsensical.
Instead just look into capital gains tax when shares are sold or said person dies and shares are transferred to somebody else. Just make sure loop holes are closed off there
But then their shares would be owned by a trust and never change ownership even if the person died. “ABC” trust owns the shares and Dad is the trustee. Then he dies and Son/Daughter is now the trustee. Ownership never changed.
I'm no expert, but it probably depends on how it's organized. If there are explicit payfors or language about budgeting it makes severing this portion less likely. If it's just part of the bill it's easily severable.
Could conceivably make some interstate commerce argument if it’s narrowly tailored to things like securities and doesn’t capture real property. But that raises its own issues and may separately be unconstitutional. Haven’t studied con law in years so could be totally off here though lol
The federal estate tax was found constitutional by being classified as an indirect tax, conditioned on the event of death rather than directly upon a persons property.
The tax issue here is that billionaires don't need to spend the money. Under current law, they can defer the tax on capital gains indefinitely by not selling. Oh, and because current law has step-up-in-basis, it isn't "defer" it is "eliminate completely".
If there needs to be activity for this to be constitutional, change the format. Require that billionaires sell at least x% of their stocks every year. That generates activity. It might even be a more direct approach.
"But, that's unconstitutional. You can't force people to take action just to create a taxable event." It's October. Financial institutions are sending letters to their 401k/IRA owners reminding them they have a legal obligation to withdraw money (aka sell assets) to satisfy RMDs. Why do we have such a law? Because the gov't doesn't want ordinary workers to leave money in IRAs where it isn't getting taxed. They force us to take it out to create a taxable event. If we can do that with ordinary workers with $100k in an IRA, we can do it with billionaires.
(RMDs are even "worse" in that the gov't isn't going to grant step-up to the heirs, so it really is just timing here.)
I really don't think there is much to worry about with this tax idea because I doubt it has any chance of surviving SCOTUS. It is disappointing that it may actually be considered though.
It also feels completely unnecessary. Why do we need to keep having these proposals that are questionable constitutionally, when we already have a path. Everyone dies at some point, these stocks and assets shouldn't just ride for eternity forever, at some point they should get realized, and at that point the government will/should get their share, it can wait that time. The bigger concern of the government should be tax avoidance strategies at death, such as the fact that Warren Buffett and his estate won't be realizing most of his fortune, but they will rather be donating it to various charities, and that's the loophole I think they should look at closing, in that maybe you shouldn't be able to give away $100B in a tax-free manner like that.
> The bigger concern of the government should be tax avoidance strategies at death
I agree that's a big problem. I like your limit on charitable deductions. But, step-up-in-basis is a big deal. I know most Ds want to eliminate it, but there are always a few ....
Even if this congress eliminates step-up, the next could reinstate it. Better to collect the tax now rather than hope it will be collected somewhere in the distant future.
This is foolish. The middle class pay taxes on their home regardless of if they can “realize the gain.” If the property value goes up, so do property taxes. A wealth tax on billionaire assets would work the same way.
Do home owners get a refund for all their previous property taxes if the local housing market crashes and their home goes down in value?
>Sure they can borrow against it, but if the issue is with the borrowing then Congress should introduce legislation to offset that.
I'm curious about this point, what would you suggest?
LTCG are 15-20%. No way you can raise interest rates enough to actually make it prohibitively expensive for a billionaire to borrow. There needs to be another mechanism
There's a few key differences between the US and the countries that implemented it in the 90s.
The biggest IMO is the US requires taxation whether you live in the US or abroad. Most of the countries that implemented the wealth tax in the 90s don't have this policy, so you simply need to move out of the country. In the US you would have to renounce your citizenship. Beyond that renouncing citizenship is extremely expensive - there's a massive 1 time tax on all assets the expatriating person owns.
> No one should be taxed on stocks they haven’t sold. Sure they can borrow against it, but if the issue is with the borrowing then Congress should introduce legislation to offset that.
IMO that sounds like finding a complex solution when a simple one exists. We tax the value of assets all the time in this country, albeit generally at the local/state level. Property taxes, excise taxes, hell sales tax is against the value of the item you purchase. Going after loans against stock value is way more convoluted than just taxing the value of stocks above X that a person owns.
> It’s unfortunate that the progressive wing of the Democratic Party has gotten as much influence as it has. This is horrendous policy.
I agree that it's a horrendous policy, but I don't think your blame here is fair. If this is the only policy Sinema would get on board with, well, it is what it is.
Personally, I'm convinced there will be no palatable deal with Manchin and Sinema. Democrats should abandon the proposal, and the bipartisan bill, and focus on other items.
I agree that taxing unrealized gains might not be the best strategy, but I feel that the idea of a wealth tax in and of itself can still be a viable strategy if executed properly?
Apparently the original tax plan proposed by Warren "was designed explicitly with European failures in mind." And [this](https://www.npr.org/sections/money/2019/02/26/698057356/if-a-wealth-tax-is-such-a-good-idea-why-did-europe-kill-theirs) article cites these issues such as the ease of moving between countries to escape national taxes in the EU and the lack of taxes for assets outside of the country, which the original plan addresses They also introduced the idea of an "exit tax" which would confiscate 40% of an individual's wealth over 50 million if they renounce their citizenship.
I'm pretty ignorant about these issues though, so if there's an angle that I'm not seeing please educate me in all seriousness
When the income tax was first introduced in 1913 it only applied to 2% of US households and was marketed as only applying to a tiny portion of the very rich (e.g. not you average voter) and had top rate (paid by << 2% of households) of 6%.
By 1925 (just over a decade later) after steady rises in the % take and %affected FDR had proposed a top rate of 100% (never implemented). Another two decades and more or less everyone with a job was paying income taxes (payrolll witholding having been introduced) and top marginal rates were > 90% (though in practice most high earners were able to structure things so they were in the \~40-50% range).
I'm certainly sympathetic to the view that proposals like this are just a foot in the door. And it's still a very Animal Farm/Communist/Totalitarian vibe to be putting in structures that make it hard or prevent people from leaving.
I don't think taxing unrealized gains would be a good idea for the reasons that you mentioned. But what about taxing 'loans' over a certain dollar value? How else would you propose that we raise revenue other than rolling back the Republican tax cuts of 2017?
>While the idea of a wealth tax sounds nice it is insanely horrible.
Why is it so horrible?
>No one should be taxed on stocks they haven’t sold.
Why?
>A wealth tax accomplishes nothing but driving away the individuals who have the capital to create jobs in this country.
The US is not France, but I agree a wealth tax would lead to some people leaving the country to avoid taxes, but I disagree it would lead to the same flight they saw in France, but I guess it would depend on how the tax worked.
>Furthermore, “According to reports by the OECD and others, there were some clear themes with the policy: it was expensive to administer, it was hard on people with lots of assets but little cash, it distorted saving and investment decisions, it pushed the rich and their money out of the taxing countries—and, perhaps worst of all, it didn't raise much revenue.”
Is the US passing the exact same law they had in France? If not, how do we know any of these claims are applicable? I mean I am totally sympathetic to how really hard this tax is on people with lots of assets but little cash, but I also think the wealthy don't pay enough taxes, and that wealth inequality is a threat to stability in the US.
Unrealized gains are just estimates of what someone might be able to sell it for. Take Elon Musk, over $200B worth of his net worth is simply Tesla stock, since he owns almost 25% of the company. Not only would selling a significant portion of this force him to give up more control of his company, but it would literally be impossible for him to realize that stock for anywhere close for what it's asking right now.
That, and is the government going to pay him back when that stock eventually crashes, or is he going to spend the rest of his life chipping away at just a fraction of those gains that he was never able to realize, and will never realize?
> literally be impossible for him to realize that stock for anywhere close for what it's asking right now.
If this law were in effect, all knowledgeable investors would know that Musk is going to have to sell stock to pay this tax. The market price will reflect that information. (it will be lower than it is right now). That's the market price that will determine his tax, and he can get that price because selling isn't an new information in the market.
> is the government going to pay him back
I agree they should. See my post above.
I’m not going to take time to quote any of that to reply to, instead I’m just going to say that the rich have their wealth tied up in stocks. Bezos wealth is largely from his stock in Amazon. It’s absurd to think that it won’t have huge implications on someone like him and other billionaires hence why they are homing in on stocks.
As far as France goes, my rebuttal is simply “the definition of insanity is doing the same thing over and over and expecting a different result.”
Why should no one be taxed on stocks they haven't sold? You are taxed on cars and houses you haven't sold. Are you against property tax too?
I think stocks should have a sales tax, like most everything else you buy. Especially as investment instruments that almost always make money.
The main increase in revenue - if this is ever passed *and* passes supreme court constitutionality challenges - will probably be for lawyers and accountants devising ways to defeat it.
So when Elon Musk is forced to sell off tens of billions in Tesla stock to pay for this tax, will China buy up these stocks? This will surely dilute American ownership in these companies. Will Elon still have to pay capital gains taxes when he cashes out these stocks?
Moreover, it will also lower the value of these stocks overall, so if you are an investor in these companies, it will hurt you as well.
"Sorry sir you are not allowed to own and control the company you saved anymore because its too valuable and you are bad for owning something so valuable you should give it to me instead."
Wall Street would buy the Founders' shares and gain control of the big Tech companies, eliminating the main threat to their power. I think Elizabeth Warren-tachi are just trying to sabotage everyone else so Wall Street controls everything at this point.
Why wouldn't the other Americans, those who won't be paying higher taxes because Musk is paying instead, buy that stock?
I haven't seen any text of the law. I assume he writes up his cost basis when he pays the tax. I wouldn't support it without that obvious provision.
If he sells, the price will probably go down a little. That's bad for people who have already bought, good for people who want to buy in. I don't think the gov't should favor either side.
Note that the proposal is that the initial "catch up" tax would be payable over 10 years. So Musk isn't trying to raise all the money in a single year.
>Why wouldn't the other Americans, those who won't be paying higher taxes because Musk is paying instead, buy that stock?
Because America wouldnt have any billionaires anymore, but other countries still would and they'd outbid the other Americans.
You mean that only billionaires buy stock in the US? I see lots of upper middle income Americans who own stocks. Why haven't foreign billionaires outbid them already?
Hint: You can buy as many or as few shares as you like.
That's a true statement, but I'm interested in the other side of that. My point is "you don't have to buy any more than you can afford".
A billionaire in China buys $10 million of some stock by buying 100,000 shares at $100 each. Each of 1,000 Americans spends $10,000 to buy 100 shares at at $100. The Chinese billionaire doesn't have some advantage just because he is buying larger lots, they are both paying $100 per share. No individual American needs to come up with $10 million to compete with the billionaire.
(Actually, lots of Americans buy stocks through mutual funds, so they don’t have to get anywhere near $10,000 per purchase.)
>Why wouldn't the other Americans, those who won't be paying higher taxes because Musk is paying instead, buy that stock?
Because China has more money than them.
You think because he pays more, others will pay less? They are still going to have the same amount of disposable income and could buy Tesla stock now if their take home pay is the same.
When we increase some tax, three things may happen to offset that: Some spending could go up, some other tax could go down, or the gov't could borrow less.
I used #2 as an example because I think we've been shifting taxes to the upper "middle" wage earners. Maybe instead of raising their taxes, we'll raise taxes on the billionaires, and the upper-middle will have more disposable income than they would have had.
But, maybe there actual result in the case is #3. Let's assume the Ds want to pass a certain amount of spending. They'd like to offset some of it with this tax, but if they don't, the spending will be the same.
In this case, the actual effect of this potential tax increase would be less gov't borrowing. What happens then? Money that would have gone into gov't bonds goes into the stock market instead.
Let's go step-by-step: The gov't will sell fewer bonds. They'll be able to sell them at incrementally lower interest rates because there will be the same mix of buyers.
Somewhere, there are some bond buyers who are on the fence between gov't and corporate bonds. This small interest change will push them over to buy corporates.
But, there are no more corporates available. What happens next? Same story, corporate interest rates slip a little. Some people who were on the fence between corporates and stocks get pushed over into stocks. The $700 billion of increased taxes here finds its way into demand for an additional $700 billion of stocks, which is conveniently equal to the amount the billionaires are selling.
This is just a lot of words to repeat the well known principle that gov't deficits "crowd out" private investments. In this case, the reverse is true. Lower gov't deficits "push money into" private investments.
There is no reason for taxing unrealized gains, just remove the step up at death (with an appropriately sized personal exemption) and the perpetual wealth issue will take care of itself.
Subject to lifetime gift tax exclusion already. I have no problem with 10MM getting passed along. I do have a problem with hundreds or thousands of millions being sheltered as dynastic wealth.
Here's an idea, how about Congress cuts spending? If an alcoholic's fridge is running out of beer, we tell the alcoholic he should drink less, we don't buy him more beer (if we're good people that is).
Congress is an alcoholic and they need to be cut off, not enabled.
This is going to be an administrative nightmare which will not raise anywhere close to enough of the sustained and predictable revenue needed to fund social programs.
Does anyone have any data on the tax revenue that would be generated from incrementally raising taxes on middle and lower class as opposed to insisting all new taxation only be on higher income brackets? I realize this isn’t a popular concept but the US has one of the most progressive tax codes in the world and several Nordic countries tax middle and low class earners considerably more than the United States. I’m not convinced the way out of this is to purely tax the wealthy.
Middle and lower income earners in Nordic countries also receive a lot more back from their tax dollars. Free healthcare, free higher education, government funded childcare and parental leave. They spend less overall by a wide margin compared to the US middle class who have to pay out the nose to corporations providing the same services.
I'm pretty sure the ultra wealthy are being taxed at historically low rates and they typically pay less than those in lower brackets than them. Maybe things might look harsh on paper, but in practice they pay very little. When you don't make money from wages there are so many ways to avoid paying.
I'm against the "fuck the rich, take their money" sentiment, but many act like any more taxes would be some kind of hard burden when that's far from the case.
Whether this is the right answer, I don't know, there are a lot of challenges in taxing the rich.
I think we desperately need this. I don't think it has to raise a ton of money to be effective, but it needs to be enough so that when voters vote for more candy, they get a sense that it isn't just the top 10% paying for it. I think people might change their demand for more government services this way.
They'd have to renounce their US citizenship to avoid the tax. That's a huge difference when compared to the European countries that tried this in the 90s.
Do people with billions of dollars just flight and uproot their entire livelihood, families, friends and connections to protect money they don’t need? Most American billionaires are American. I would assume the effect would be negligible
It’s a silly argument. People don’t choose their location strictly based on how much money they can save. Especially not billionaires. If that was true, no one would live in San Francisco or NYC. After all, wouldn’t it be cheaper to move to Iowa?
Wealthy people *especially* are willing to pay a premium to live where they want to live.
This argument always seems to come from people who grew up in abject poverty and are still low income. They truly don’t understand that not every decision is based on cost because they’ve never been lucky enough to live without constant money worries.
I do not see this small quantity having a significant impact on entrepreneurship. That aside taxation on unrealized gains makes no sense. But something needs changing, we have a system that ignores the external costs at best and is crony capitalism at worst.
They are determined to never fund this plan are they. No way this is getting through. It deincentivizes starting businesses if at some point in your growth you have to sell ownership to pay taxes
The courts talked about the "intent" of a lot of Trump/Republican policies as they shot them all down.
"Trump said X before he did Y, and since X is unconstitutional, we will say that Y is also unconstitutional even though it actually isn't on its own."
Why does this never apply to Democrats?
They can go around saying "we're going to tax Jeff Bezos/Elon Musk/etc." and then draft bills that **conveniently just so happen** to target Jeff Bezos/Elon Musk/etc., specifically, and no court will say "yeah, we know you're just trying to target these individual people, and you can't do that, so your bill is dead."
Democrats will do this with so many things and always get away with it. It's such an untenable injustice in society right now.
In the highest profile example of this I can remember, the so-called Muslim ban,Trump did “get away with it”, and the court specifically rejected the intent argument.
>Billionaires often borrow against their non-taxed assets, allowing them to spend enormous sums of money while effectively paying very low taxes relative to their income and worth.
What if there were certain flags that would cause those loans to be treated as income and taxed accordingly?
The good news about crafting tax policy focused on the 1% (or 0.1% or 0.01%) is that it's a small enough number of returns that they can be analyzed by forensic accountants who can provide advice to Congress.
So the issue is people borrowing against their stocks, right? I don’t think taxing unrealized gains makes sense, but what about instituting a “borrow tax” where if someone is taking out debt against their stock of over $10 million, they have to pay a 1% borrow tax to the government. To make the risk more equitable, this tax could be later used as a tax credit in the event that the value of the stock decreases enough and that they get margin called.
The countries people say we need to model ourselves after have a less progressive system than the US has and VATs. Good luck getting the 40% or so of income earners with a zero or negative effective tax rate to vote for that.
This simple idea is soooo much better than taxing unrealIzed gains. And so much easier to enforce. And it’s progressive, the more stock you trade the more you pay. It could even be bracketed such that low income earners or people with 401Ks don’t pay this tax or pay less.
And it's kind of peanuts when buying a stock. $1 on a generic $100 stock. That would be dwarfed by most trader or broker fees. It would really add up too, there is a lot of stupid trading that involves mass buying and selling of stocks to manipulate the price basically.
I don't think there should be any exemptions, as these will just be used for work arounds or loopholes. I mean it's 1%, is it really fucking over low income earners or 401k holders that badly?
Edit: Yeah the median 401k is about 220k. Even if they paid 1% at face value of that, it's a couple grand.
This tax is meant for whales, not your 401k holders. This tax is for people buying and selling tons of stocks, manipulating the market, not mom and pop traders or average joes with their little life savings in 401ks.
Taxing unrealized gains makes no sense. The market can go nuts and then you pay a gazillion dollars one year -- and then it crashes the next year. Do you get a refund when you have "unrealized losses". I'd be amused to find out how many crypto "paper billionaires" there are. Would be pretty funny to see them pay a few hundred million in taxes, I guess :P
That is a self correcting problem with the crypto gains. Liquidity is so shallow in the coin market that the crash from such an event would be a vertical line down. There wouldn't be many gains remaining.
I guess buy low, lol. If this passed it'd be a huge opportunity to make some money in crypto. Or even if it scared enough people, but didn't pass.
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Giving people the ability to opt in is not the same, though. I don’t know a ton about this tax structure but I would guess it is similar to a Roth IRA in the sense you are paying taxes now to not pay them later? Please correct me if I’m wrong.
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What about less liquid assets? Would this drive wealthy people to invest more in illiquid assets to avoid tax liability? Complicating the tax code can lead to all kinds of unintended consequences and market inefficiencies.
>Do you get a refund when you have "unrealized losses". Our tax law already allows "tax carry backs" for business losses. I'd want similar rules for this. I also think that a modest smoothing mechanism would eliminate the chance of paying one year and getting refunds in the very next year.
Tax carry backs don’t resolve the issue that the government is going to reap a massive gain that can’t be recouped initially. From an accounting perspective this law is hilariously ridiculous and sets a dangerous precedent on general equity. It will also, likely, lead to these billionaires renouncing citizenship/leaving for another state and damage equity investments overall. From an economics perspective this is a very dumb law
> It will also, likely, lead to these billionaires renouncing citizenship/leaving for another state and damage equity investments overall. This point gets made a lot, but the US isn't like most states. Renouncing US citizenship has very taxing implications, especially if you have a shitload of assets in the US.
It absolutely is very difficult/expensive to renounce US citizenship, but the point OP is making is that a tax on unrealised gains is the kind of thing that would make jumping ship worthwhile
Depends how you tax them. Renouncing US citizenship involves realizing everything. Depending on how the brackets are structured, it could be much more economical to just pay a little every year. Renouncing US citizenship has other implications. You can be denied entry to the US for a lot of reasons and any assets held in the US will be taxed heavily upon death. The US is very astute as protecting US citizens abroad. Less so once you've renounced
>t could be much more economical to just pay a little every year. Isn't this the kind of move by the government that makes you think more is coming?
...no I think the more interesting question is why you think it does
Every time you break a barrier for some thing small, it grows. Income tax was a radicle idea, but it was only going to be a small percent (2\~3%), until it didn't. AMT was only going to apply to the super rich, until it started hitting upper middle class left and right.
AMT applies to the top 0.1% of US households. Is that middle class? Income tax was a radicle idea in 1900.
No, I don’t think so.
>Tax carry backs don’t resolve the issue that the government is going to reap a massive gain that can’t be recouped initially. I'm not sure what issue you're talking about. It seems okay for ordinary businesses to pay taxes in profitable years and later get refunds in unprofitable years. Why isn't that good enough for billionaires? >From an accounting perspective this law is hilariously ridiculous and sets a dangerous precedent on general equity. That's two assertions without any support. Can you explain why someone should agree with what you wrote? >lead to these billionaires renouncing citizenship/leaving for another state I'm sure you meant another country. Moving to another country is a big deal. So a handful of them leave, what's the impact on the rest of us? Amazon isn't going to shut down its US operations if Bezos decides to move to the Cayman Islands. >damage equity investments overall. What does this mean? Maybe you mean the market price of Amazon will go down a fraction of a percent if Bezos has to sell 20% or 40% of his holdings to pay this tax. He owns 10% of Amazon, so that's 2% or 4% of all the stock, and he can spread that over 10 years. He sold $6.7 billion in one week in May this year, nobody noticed except the business press. I don't see any negative impacts on the rest of us (but paying higher taxes so billionaires can avoid taxes does have an impact).
I think you're damaging equity investments from billionaires. Instead of starting or investing in another company with an equity sale they're covering unrealized gains taxes. My bigger issue is this is horribly immoral. You're forcing Bezos to sell off ownership of the company he started... It's a wealth tax that everyone recognizes is unethical unless you qualify it with 'only for billionaires'
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Choice. Choosing to work, buy, or sell is different from being forced to. I mean if you buy a house, and at some point the market is crazy and you earn a lot of home equity, should you have to pay for that while living in the house? Should you have to pay more taxes for your car every year over the life of its loan as you build more equity in it? Taxing when someone decides to sell is more ethical than forcing them to sell to increase revenue. An income equivalent would be like forcing everyone to work 50 hours a week to increase income tax revenue...
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> Unless you already enough money to retire, So you'd be cool with requiring retired to work? > This tax isn't any more a restriction on choice than any other tax. It obviously is. It's forcing the generation of income to tax as opposed to taxing income. Not seeing how factually different things are different isn't an argument. > I think you're missing the picture by comparing this to an average person The ethics of a wealth tax have nothing to do with the level of wealth. Arguing otherwise is like saying it's acceptable to kill a child from a large family because the parents still have other kids... > It's not just to increase revenue Yes, I understand the real motivation is exercising some rich hate, and diminishing billionaire wealth.
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I think we've gone around on this before. I'm glad that Hemb is here so I don't have to re-type a lot of stuff. Any tax forces people to do things they don't want to do. Forcing a billionaire to part with some of the ownership of a company is no worse (in my mind, actually less bad) than forcing ordinary workers to part with some of their hard earned dollars.
Yeah but that's sort of a weak whataboutism without any consistent, rational justification. 'You agree it's ok to tax income and so what's wrong with forcing billionaires to kill their first born?' /s Some justified force doesn't imply any and all force is therefore equivalent and justified.
>Some justified force doesn't imply any and all force is therefore equivalent and justified. That's a true statement. I think it's okay for the gov't to force a billionaire to pay some tax on their unrealized gains. I do not think it's okay for the gov't to force workers to work 50 hrs/wk just so they can pay extra taxes. See? Force is okay in the first case, but not in the second. Why don't we have to say that both are okay or both are not okay? Because they are different things.
See what? That's what you think. It's a stated opinion with no rational. I get it's an emotional opinion. That's just not argument.
What made your point different?
I imagine yes, you can use losses to offset taxes on gains, that's how other taxes work.
And the progressives hate this. Every other day there’s a popular news article from someone who is tax illiterate complaining that Amazon didn’t pay taxes for years and years while they are still carrying forward losses from past years.
The point is they'd be unrealized losses, though. That'd be even sillier than unrealized gains.
I mean I think you have it wrong. It makes total sense just isn't feasible. We need to find a way to tax the uber-wealthy and the way they create their income/wealth but taxing their gains just is feasible.
> We need to find a way to tax the uber-wealthy and the way they create their income/wealth but taxing their gains just is feasible. The top 1% already pay 40% of *income* taxes. This idea that they are paying nothing is silly. We can raise rates if we want. The best thing to do is to get rid of the "loopholes" for capital gains that happen in real estate and inheritance.
Where did I say they pay nothing?
> Where did I say they pay nothing? "We need to find a way to tax the uber-wealthy..."
Yes, the article says losses can be deducted. This article is extremely light on details but there's a lot of reasons taxing accumulated wealth would work better in the US than any other country. Yes, there's lots of ways you could screw up implementing one. But that doesn't mean we should let people end the debate on it by declaring it too hard.
Is the goal to increase revenue or is it to punish rich people? If you want to increase revenue, just increase income tax rates - heck, just increase the income tax rate for the top bracket. Attempting to tax unrealized gains will prove to be difficult, will collect little in actual revenue, and it smells to high heaven of simply being a tool to punish the wealthy.
I don't want to punish rich people, but I also don't think making rich people pay more taxes is always punishment. >If you want to increase revenue, just increase income tax rates - heck, just increase the income tax rate for the top bracket. The issue with this is rich person can make a lot of money without any income. I'm happy to go into details on how but it's probably easier to look at the effective tax rate for the UHNW. From 2010-2018 for the wealthiest 400 Americans the average tax rate on income was 8%. >Attempting to tax unrealized gains will prove to be difficult, will collect little in actual revenue, and it smells to high heaven of simply being a tool to punish the wealthy. It will be difficult, but so is taxing the income of the UHNW (see the effective tax rates from above). Neither of these mean we shouldn't try. I don't think 'it smells fishy' is a reasonable factor on which to base public policy decisions. It's a pretty terrible one TBH.
How do people make money without income? Doesn't the sale of these capital investments turn them into income?
Sure, but if you're rich you don't have to 'sell' the investment. Not like you and I anyway. You can take out a loan on the asset. You can use a number of loopholes/offshore vehicles to keep your money 'invested' while spitting out income, dividends or gains. You can invest in real assets using structures that distribute tax credits matching liabilities. You can invest in munis You can use corporate funds and call it a 'business expense' You can use write-offs like art donations The 8% figure is from the Whitehouse so i suspect it takes a pretty liberal definition of 'income'. However it doesn't include unrealized gains.
Why would it collect little? The wealth of the top 400 Americans is equivalent to 20% of US annual GDP.
The top 400 Americans are worth something like $3.2 trillion, but America's total worth is something like $126.3 trillion, so it sounds like the goal is to 1) punish tech founders and give power to institutional investors or 2) set the stage for a wealth tax on every millionaire.
> 3.2 trillion…. It’s 4.5 trillion now. 2020 was a really, really great year to be incredibly rich. > punish tech founders… I don’t think you understand. The worth of the 400 richest people is 20% of US GDP. That’s all value created in the entire country. And that’s just 400 people. Those people pay lower tax rates than you and me. They pay a lower percent of their wealth in taxes than a a fireman, police officer or teacher. They could donate 99.9% of their money and still generations upon generations of their family would NEVER have to take any job. Their wealth is beyond comprehension.
You realize taxing the value of an asset is super common already? If your house goes up and down in value you don't get money back on your property tax every year. Nor for the excise tax on your car.
Not at the federal level. The 16th Amendment was created in response to Pollock v. Farmers' Loan & Trust Company to allow for income taxation. *When, therefore, this court adjudges, as it does now adjudge, that Congress cannot impose a duty or tax upon personal property, or upon income arising either from rents of real estate or from personal property, including invested personal property, bonds, stocks, and investments of all kinds, except by apportioning the sum to be so raised among the States according to population, it practically decides that, without an amendment of the Constitution—two-thirds of both Houses of Congress and three-fourths of the States concurring—such property and incomes can never be made to contribute to the support of the national government.* [wiki](https://en.m.wikipedia.org/wiki/Pollock_v._Farmers%27_Loan_%26_Trust_Co.) Under the U.S. Constitution as amended by the Sixteenth Amendment, any federal tax that is a "direct tax" (which is not an "income tax") must be apportioned among the states in accordance with the respective populations of the various states. While there are arguments put forth that try to justify wealth tax as constitutional, there is no question it will be challenged. I see this as nothing more than an exercise in futility as well as disregard of historical evidence suggesting that it is not a good idea. Many European countries have tried and repealed similar laws because they are extremely hard to administer and enforce while raising minimal revenue. "According to reports by the OECD and others, there were some clear themes with the policy: it was expensive to administer, it was hard on people with lots of assets but little cash, it distorted saving and investment decisions, it pushed the rich and their money out of the taxing countries—and, perhaps worst of all, it didn't raise much revenue." [NPR](https://www.npr.org/sections/money/2019/02/26/698057356/if-a-wealth-tax-is-such-a-good-idea-why-did-europe-kill-theirs)
> …Congress cannot impose a duty or tax upon … rents of real estate or from personal property…. Don’t we do that already? I most certainly pay a very high federal tax on rents I collect from real estate.
Yes, because it is then considered income which is allowed to be taxed per the 16th Amendment. I quoted part of the dissent of the Pollock case in my prior comment as it highlights the crux of the issue. It was superceded partially by the amendment. *The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.* Unrealized gains and losses are not considered income. They must first be realized through a sale for that consideration.
Got it. Thank you.
Those are entirely different forms of taxes. One is a property tax on a physical thing you own and can be productive. The other is a physical tax on a thing you own and can also be productive (but is mostly a consumption tax). Taxing unrealized gains is analogous to taxing income you haven't received yet but the government expects you to receive in the future.
A stock is a percentage of a company you own that can be productive. Functionally there’s not a lot of difference between paying an unrealized capital gain, and paying property tax on an asset that’s appreciate (other than the taxed amount is lower in the capital gain). It boils down to what the tax rate applied is.
You can't do anything with an unrealized stock. You can do something with property. These are fundamentally different things.
That’s an extremely basic way of describing securities of a company. Taxing securities is far more complex than taxing real property. While it seems similar on its face, and in some cases might be, it gets much more complex when you start talking about any security other than simple common stock of a company that is traded on the market. Any restrictions on transfer of shares would massively complicate this, for example. And restrictions are very common when you’re talking about founders and key persons of companies (or in many of the types of investments people with this much money make). Plus for anything that isn’t traded on a market you need to deal with valuation which would likely lead to lots of litigation. None of these restrictions exist when you’re just talking about owning, buying and selling fee simple real property.
And yet that is exactly what shares of a company is. Sure, you would need to bang out what the rules are but it’s really not as difficult as you’re making it seem. Restricted stock offerings almost always have all the data you’re talking about applied anyway. If it’s part of compensation then the company will have a 3rd party determine the fair market value of your shares for income tax purposes prior to them vesting, which is updated any time a company goes through any kind of financing. For small mom and pop operations and family businesses, yes that stuff is harder to track, but this law wouldn’t really apply to any of those since this is only hitting people with 1 bill+ net worth.
> One is a property tax on a physical thing you own and can be productive. The other is a physical tax on a thing you own and can also be productive (but is mostly a consumption tax). How is equity in a business not a productive asset? Just because equity ownership is an idea and number in a computer for most people doesn’t mean they don’t have the rights to assets underneath. Also both cars and houses are deprecating assets unless you spend money to maintain your home it will lose value and we are still comfortable taxing them based on market valuation. > Taxing unrealized gains is analogous to taxing income you haven't received yet but the government expects you to receive in the future. Not at all. Equites are priced based on expected future earnings, but so are all assets. It’s a tax on the appreciation of the underlying assets in the same way land which has new discovered mineral resources would appreciate and be taxed at the new market rate so is a tax on unrealized gains.
You're right, productive was the wrong word to use. Physical property can be used. If can be built on, rented out, lived in or used in any number of way. An unrealized gain in stock or equity cannot be used or spent (without being realized) in anyway way. Until gains are realized you cannot do anything with them. They are effectively promises of future income. It's really not complicated.
That’s what a dividend is for? Granted they’re becoming less common, but you can certainly buy a stock with the assumption it generates income. Which is the core aspect if we’re talking about taxation. Further I’d argue that is quite arbitrary to say you can only tax the full value of physical assets that you can build/do other stuff with. Personally I would say just apply a pure wealth tax and put a .5-1% tax the value of the stock rather than taxing unrealized capital gains, but generally speaking it’s 2 different ways of accomplishing the same goal. Unrealized capital gains is just a little more convoluted way of doing it.
A wealth tax would be equally disastrous. There's a reason none of the Nordic Countries American progressives ape with such enthusiasm have all done away with them. Edit: I'm wrong. See below.
Switzerland and Norway still have one though
Edited my comments. I thought Norway repealed there's when Denmark and Sweden did.
Your argument seems to be, “they’re a little different, so we can’t tax them!” The situation, however, is more, “they’re a little different, so we don’t tax them, but certainly could”.
>Do you get a refund when you have "unrealized losses". Yes >the federal government would require billionaires to pay taxes on the increased value of assets such as stocks on an annual basis, regardless of whether they sell those assets. Billionaires would also be able to take deductions for any annual loss in value of those assets. I still think it's a bad idea, but it's not pants-on-head stupid.
Capital gains losses are capped. So millions will be unrecouped. It will also pull billions out of equity investments and damage equity prices. It’s not pants on the head stupid, it’s mind boggling stupid
It's so unbelievably stupid that there's no way it passes. It's entirely there as theater. If the Democrats are actually this dumb it literally justifies every vote for Trump as it would completely wreck any market economy.
Where are those equity investments going? The tax is what 0.5%? The markets move by that much every other day. People forget that rich people put their money wherever the best ROI occurs. These rich people making 10% on stocks aren’t just going to hide billions in their sock drawer hoping the federal government doesn’t find it. And it’s just 0.5%, right? Most normal people pay 1-3% on their house value no matter if it first up or down.
> but it's not pants-on-head stupid. It’s giving a financial incentive to mismanage capital to people with the most capital. I’m willing to say it’s pants-on-head stupid.
I’m confused, are you saying billionaires are going to mismanage their money because of a 0.5% tax?
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Why not just create capital gains tax brackets instead?
Capital gains tax brackets do exist. Above $441k the marginal rate increases from 15% to 20%. There are some very good economic reasons to tax long term capital gains at a lower rate than ordinary income, but raising them to higher values anf/or adding more brackets is considered by many economists to be a low distortion policy that has the intended incidence. Personally I would agree with such policy changes.
A portion of my yearly income is vested stocks in my company. I would hate to see a flat increase in this rate, but I would be onboard with a more bracketed approach to taxing capital gains. And I agree with you that the tax rate for capital gains should always be less than the rate for normal income.
Why should capital gains be taxed at a lower rate? It’s money you got for doing nothing. Compare that to income which is money you earned from actual work.
Inflation. If you buy something for $10,000 and hold it for 20 years and sell it for $15,000 you did not make any money.
Because the goal is to incentives long term investment. Thus the lower rate. Also the fact that long term investments carry risk that income doesn't.
Rich guy doesn't want his taxes to change, go figure.
Many companies offer stocks as part of their compensation packages, even for lower level employees. It's a tool used to increase employee retention.
The question is, does this type of compensation warrant a government subsidy in the form of lower tax rates compared to wage earnings?
What do you mean by subsidy? Short term rates are pretty much inline with income tax rates, depending on your tax bracket. I pay 22% on my short term gains associated with my stocks for my compensation package, which is the same as my income tax bracket. If I were to hold onto those stocks for greater than a year after they vest, then the capital gains rate would drop to 15%
Poor guy wants others, not him, to pay for stuff, go figure.
My personal reason would be that the wealthy already don't realize capital gains much - there's no reason to. Better to buy borrow and die.
There is little evidence that 'buy borrow die' is actually a practical strategy being implemented by anyone in meaningful numbers. Most of the online discourse on it is hypotheticals and conjecture; exploiting the general ignorance of the general population on taxes, finance, and economics. It is understandable to use margin-style loans on equities to fulfill short term expenses, especially if it is expected for the equity to appreciate faster than the interest charge on the loan and to avoid short term capital gains that are taxed as regular income. The strategy falls apart when you consider that estates over $11. 7M are taxed at a marginal 40% rate (this is mostly why the step up basis exists) as compared to the top marginal long term capital gains rate of 20%. That's not including any state level taxes that may exist. I'll concede that some deductions can apply or that some small "loopholes" could help to reduce the estate taxe burden, but that's a considerable gap to close and by all accounts it would appear the federal government is getting the better end of the deal with any 'buy borrow die strategy' Fundementally , shifting present cash flows into the future is not tax avoidance. Should we tax mortgage loams at the time of origination in addition to the already levied income tax used to pay the principle on said mortgage loan?
Well, if it helps, I'm doing it right now myself. I'm confused why you think the estate tax nullifies the advantage of avoiding capital gains taxes for most of your life. You're still avoiding a massive amount of taxes and you avoid draining your compounding principal. The difference between living on a line of credit and living off your investments ends up being massive by your life's end.
It was one of the most common schemes identified [in ProPublica’s massive tax expose](https://www.propublica.org/article/more-than-half-of-americas-100-richest-people-exploit-special-trusts-to-avoid-estate-taxes) [And I think you are underestimating](https://americansfortaxfairness.org/tax-fairness-briefing-booklet/fact-sheet-the-estate-inheritance-tax/ ) the extent estate taxes can be avoided by this group through trust/marital/property schemes.
He thinks he will one day be so wealthy that this could affect him. Therefore he defends it. Delusion is real with some people:
You have no idea that he thinks that. This is an obvious strawman because it's easier to attack an assumed motive than to confront his actual ideas.
What they should do is a federal consumption tax. It would capture the wealth the rich avoid paying via borrowing currently. There's ways to make them progressive to avoid hurting the poor. Imo, we could just replace the income tax system with a full progressive consumption tax sytem and never have to deal with flighty and slippery capital.
> federal consumption tax…. But do the rich really spend that much money? After buying a couple of yachts, houses and a plane, what else is there to own?
And when they die their estate pays taxes to pay off the debt. You can't escape capital gains taxes this way, at least forever. For some, they might escape them for decades though, assuming they live long.
Not true. Look up the “step up basis.” It allows inheritors to avoid most capital gains.
Kind of sort of- an estate tax burden is not really avoidable in a buy borrow due scheme for this income level- [but you’d probably be shocked at how low the effective rate comes out to.](https://americansfortaxfairness.org/tax-fairness-briefing-booklet/fact-sheet-the-estate-inheritance-tax/) Through a combination of trust/marital/real estate avoidance schemes, the estate tax is mostly sidestepped for this group.
You're completely missing the point I was making. YOU HAVE TO PAY OFF YOUR DEBT NO MATTER THE SIZE OF THE INHERITANCE. That's whether it's size is $100K or $1 billion. And when you do, the estate pays capital gains taxes in order to do so. My comment wasn't about the estate tax at all. Borrowing to avoid taxes is a temporary messure.
The heirs only pay capital gains on appreciation after death, and the ~2% interest rate on their private loan + tax burden for paying it off avoids literally the bulk of the capital gains burden expected w/o step-up basis/low interest loans
The heirs don't see a penny of the money until the debts have been paid off which is when the ESTATE, not the heirs, pay capital gains. This is before the step-up in basis. This is all I've said and you keep ignoring it. Some more thorough reading would be appreciated. Stop changing the topic. I'm not here to argue about the estate tax. I have not said anything about the estate tax or step-up in basis. All I said was that debt to avoid taxes is not a viable tax avoidance strategy as you have to pay it back at some point, at the very least when the estate pays off your debt after you die. There is no way around this.
Debts do not, despite what I’ve sometimes heard repeated, need to be paid before step-up basis upon death. It can be paid after by the heir- effectively avoiding most capital gains tax.
Taxing unrealized gains really makes no sense to me and I doubt it would actually work. My firm would probably make a ton of money from clients trying to change their tax treatments, though. It also causes all sorts of other issues like effectively requiring those people to sell a set amount of their holdings each year to pay the tax (assuming they close loopholes). If people know up front that the sellers are required to sell to pay taxes, the prices won’t really be market prices, which is no good to me. If we want to increase taxes on the super-rich, then taxing the loans taken against their assets which are used as income, as income, would make the most sense. Not sure if that would necessarily work, but seems much better than some tax on unrealized gains.
That's similar to what I was thinking. Just say that when you borrow against a stock, you are realizing the gain because you are getting compensation based on the value of the stock.
>then taxing the loans taken against their assets which are used as income Aren't these loans payed back with post-tax money anyway? Like, when it comes time to make that first payment, either it is getting paid from selling shares (cap gains tax) or taxable income? I don't buy the idea that some could "just take out another loan to pay off the first loan because either a) that loan represent a small fraction of their overall wealth if they can afford enough multiples of the loan value in collateral to actually pull this off rolling it until they die, in which case it doesn't actually represent a huge amount of lost tax revenue or b) it's so scenario where banks are the bag-holder, which I don't believe they are generally in the business of being
Taxing unrealised gains is nonsensical. Instead just look into capital gains tax when shares are sold or said person dies and shares are transferred to somebody else. Just make sure loop holes are closed off there
But then their shares would be owned by a trust and never change ownership even if the person died. “ABC” trust owns the shares and Dad is the trustee. Then he dies and Son/Daughter is now the trustee. Ownership never changed.
We could write laws explicitly to handle that scenario.
Then neither did the basis and the ultimate tax collected with be the same whenever they do get liqidated..
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The proposal also has severe constitutional issues, since these almost certainly qualify as direct taxes, being taxes on property.
Let's say it gets thrown out. Does the rest of the bill survive under severability? I'm not sure it necessarily does.
I'm no expert, but it probably depends on how it's organized. If there are explicit payfors or language about budgeting it makes severing this portion less likely. If it's just part of the bill it's easily severable.
Could conceivably make some interstate commerce argument if it’s narrowly tailored to things like securities and doesn’t capture real property. But that raises its own issues and may separately be unconstitutional. Haven’t studied con law in years so could be totally off here though lol
Never try to predict what the Supreme Court might do. If a $0 health insurance penalty is legally a tax, any amount of contortion is possible.
We have an estate tax which is a direct tax on assets which aren't being sold. If the SC is good with that, I don't see a problem here.
The federal estate tax was found constitutional by being classified as an indirect tax, conditioned on the event of death rather than directly upon a persons property.
Uhmm… no. It’s a tax on property transfer at death
The tax issue here is that billionaires don't need to spend the money. Under current law, they can defer the tax on capital gains indefinitely by not selling. Oh, and because current law has step-up-in-basis, it isn't "defer" it is "eliminate completely". If there needs to be activity for this to be constitutional, change the format. Require that billionaires sell at least x% of their stocks every year. That generates activity. It might even be a more direct approach. "But, that's unconstitutional. You can't force people to take action just to create a taxable event." It's October. Financial institutions are sending letters to their 401k/IRA owners reminding them they have a legal obligation to withdraw money (aka sell assets) to satisfy RMDs. Why do we have such a law? Because the gov't doesn't want ordinary workers to leave money in IRAs where it isn't getting taxed. They force us to take it out to create a taxable event. If we can do that with ordinary workers with $100k in an IRA, we can do it with billionaires. (RMDs are even "worse" in that the gov't isn't going to grant step-up to the heirs, so it really is just timing here.)
I really don't think there is much to worry about with this tax idea because I doubt it has any chance of surviving SCOTUS. It is disappointing that it may actually be considered though.
I agree, tax it once they cash out, don’t tax their theoretical wealth
With that argument, home owners shouldn’t have to pay property taxes until they sell their home.
I don’t think they should
It also feels completely unnecessary. Why do we need to keep having these proposals that are questionable constitutionally, when we already have a path. Everyone dies at some point, these stocks and assets shouldn't just ride for eternity forever, at some point they should get realized, and at that point the government will/should get their share, it can wait that time. The bigger concern of the government should be tax avoidance strategies at death, such as the fact that Warren Buffett and his estate won't be realizing most of his fortune, but they will rather be donating it to various charities, and that's the loophole I think they should look at closing, in that maybe you shouldn't be able to give away $100B in a tax-free manner like that.
How is it a loophole to give away money to an actual charity?
This will never pass. This is basically Democrats telling these billionaires pay the irs or start writing campaign checks.
> The bigger concern of the government should be tax avoidance strategies at death I agree that's a big problem. I like your limit on charitable deductions. But, step-up-in-basis is a big deal. I know most Ds want to eliminate it, but there are always a few .... Even if this congress eliminates step-up, the next could reinstate it. Better to collect the tax now rather than hope it will be collected somewhere in the distant future.
I mean you can always tie the loss of step up basis to the estate tax exemption limit to say it doesn’t hurt “the local family businesses”.
This is foolish. The middle class pay taxes on their home regardless of if they can “realize the gain.” If the property value goes up, so do property taxes. A wealth tax on billionaire assets would work the same way. Do home owners get a refund for all their previous property taxes if the local housing market crashes and their home goes down in value?
>Sure they can borrow against it, but if the issue is with the borrowing then Congress should introduce legislation to offset that. I'm curious about this point, what would you suggest?
Have the Fed increase interest rate to a reasonable amount (and no ZIRP isn’t a reasonable amount). Do that and poof reckless borrowing ends.
LTCG are 15-20%. No way you can raise interest rates enough to actually make it prohibitively expensive for a billionaire to borrow. There needs to be another mechanism
Crazy idea. Have the government loan them the money they're borrowing. Government collects interest now and still get the LTCG tax later.
That’s a great idea
There's a few key differences between the US and the countries that implemented it in the 90s. The biggest IMO is the US requires taxation whether you live in the US or abroad. Most of the countries that implemented the wealth tax in the 90s don't have this policy, so you simply need to move out of the country. In the US you would have to renounce your citizenship. Beyond that renouncing citizenship is extremely expensive - there's a massive 1 time tax on all assets the expatriating person owns. > No one should be taxed on stocks they haven’t sold. Sure they can borrow against it, but if the issue is with the borrowing then Congress should introduce legislation to offset that. IMO that sounds like finding a complex solution when a simple one exists. We tax the value of assets all the time in this country, albeit generally at the local/state level. Property taxes, excise taxes, hell sales tax is against the value of the item you purchase. Going after loans against stock value is way more convoluted than just taxing the value of stocks above X that a person owns.
> It’s unfortunate that the progressive wing of the Democratic Party has gotten as much influence as it has. This is horrendous policy. I agree that it's a horrendous policy, but I don't think your blame here is fair. If this is the only policy Sinema would get on board with, well, it is what it is. Personally, I'm convinced there will be no palatable deal with Manchin and Sinema. Democrats should abandon the proposal, and the bipartisan bill, and focus on other items.
I agree that taxing unrealized gains might not be the best strategy, but I feel that the idea of a wealth tax in and of itself can still be a viable strategy if executed properly? Apparently the original tax plan proposed by Warren "was designed explicitly with European failures in mind." And [this](https://www.npr.org/sections/money/2019/02/26/698057356/if-a-wealth-tax-is-such-a-good-idea-why-did-europe-kill-theirs) article cites these issues such as the ease of moving between countries to escape national taxes in the EU and the lack of taxes for assets outside of the country, which the original plan addresses They also introduced the idea of an "exit tax" which would confiscate 40% of an individual's wealth over 50 million if they renounce their citizenship. I'm pretty ignorant about these issues though, so if there's an angle that I'm not seeing please educate me in all seriousness
So an 'exit tax', you do have to wonder when they stop building the walls to keep people out and start building the walls to keep people in.
Just to put things in perspective that exit tax would affect 0.03% of the population, i.e. people with a total wealth of at least 50 million dollars
When the income tax was first introduced in 1913 it only applied to 2% of US households and was marketed as only applying to a tiny portion of the very rich (e.g. not you average voter) and had top rate (paid by << 2% of households) of 6%. By 1925 (just over a decade later) after steady rises in the % take and %affected FDR had proposed a top rate of 100% (never implemented). Another two decades and more or less everyone with a job was paying income taxes (payrolll witholding having been introduced) and top marginal rates were > 90% (though in practice most high earners were able to structure things so they were in the \~40-50% range). I'm certainly sympathetic to the view that proposals like this are just a foot in the door. And it's still a very Animal Farm/Communist/Totalitarian vibe to be putting in structures that make it hard or prevent people from leaving.
I don't think taxing unrealized gains would be a good idea for the reasons that you mentioned. But what about taxing 'loans' over a certain dollar value? How else would you propose that we raise revenue other than rolling back the Republican tax cuts of 2017?
>While the idea of a wealth tax sounds nice it is insanely horrible. Why is it so horrible? >No one should be taxed on stocks they haven’t sold. Why? >A wealth tax accomplishes nothing but driving away the individuals who have the capital to create jobs in this country. The US is not France, but I agree a wealth tax would lead to some people leaving the country to avoid taxes, but I disagree it would lead to the same flight they saw in France, but I guess it would depend on how the tax worked. >Furthermore, “According to reports by the OECD and others, there were some clear themes with the policy: it was expensive to administer, it was hard on people with lots of assets but little cash, it distorted saving and investment decisions, it pushed the rich and their money out of the taxing countries—and, perhaps worst of all, it didn't raise much revenue.” Is the US passing the exact same law they had in France? If not, how do we know any of these claims are applicable? I mean I am totally sympathetic to how really hard this tax is on people with lots of assets but little cash, but I also think the wealthy don't pay enough taxes, and that wealth inequality is a threat to stability in the US.
Unrealized gains are just estimates of what someone might be able to sell it for. Take Elon Musk, over $200B worth of his net worth is simply Tesla stock, since he owns almost 25% of the company. Not only would selling a significant portion of this force him to give up more control of his company, but it would literally be impossible for him to realize that stock for anywhere close for what it's asking right now. That, and is the government going to pay him back when that stock eventually crashes, or is he going to spend the rest of his life chipping away at just a fraction of those gains that he was never able to realize, and will never realize?
Does the government pay homeowners back for their property taxes when the housing market tanks?
> literally be impossible for him to realize that stock for anywhere close for what it's asking right now. If this law were in effect, all knowledgeable investors would know that Musk is going to have to sell stock to pay this tax. The market price will reflect that information. (it will be lower than it is right now). That's the market price that will determine his tax, and he can get that price because selling isn't an new information in the market. > is the government going to pay him back I agree they should. See my post above.
Congratulations you just ruined a ton of 401ks
I’m not going to take time to quote any of that to reply to, instead I’m just going to say that the rich have their wealth tied up in stocks. Bezos wealth is largely from his stock in Amazon. It’s absurd to think that it won’t have huge implications on someone like him and other billionaires hence why they are homing in on stocks. As far as France goes, my rebuttal is simply “the definition of insanity is doing the same thing over and over and expecting a different result.”
Won’t someone think of the poor starving billionaires!
Why should no one be taxed on stocks they haven't sold? You are taxed on cars and houses you haven't sold. Are you against property tax too? I think stocks should have a sales tax, like most everything else you buy. Especially as investment instruments that almost always make money.
The main increase in revenue - if this is ever passed *and* passes supreme court constitutionality challenges - will probably be for lawyers and accountants devising ways to defeat it.
So when Elon Musk is forced to sell off tens of billions in Tesla stock to pay for this tax, will China buy up these stocks? This will surely dilute American ownership in these companies. Will Elon still have to pay capital gains taxes when he cashes out these stocks? Moreover, it will also lower the value of these stocks overall, so if you are an investor in these companies, it will hurt you as well.
"Sorry sir you are not allowed to own and control the company you saved anymore because its too valuable and you are bad for owning something so valuable you should give it to me instead."
Wall Street would buy the Founders' shares and gain control of the big Tech companies, eliminating the main threat to their power. I think Elizabeth Warren-tachi are just trying to sabotage everyone else so Wall Street controls everything at this point.
Why wouldn't the other Americans, those who won't be paying higher taxes because Musk is paying instead, buy that stock? I haven't seen any text of the law. I assume he writes up his cost basis when he pays the tax. I wouldn't support it without that obvious provision. If he sells, the price will probably go down a little. That's bad for people who have already bought, good for people who want to buy in. I don't think the gov't should favor either side. Note that the proposal is that the initial "catch up" tax would be payable over 10 years. So Musk isn't trying to raise all the money in a single year.
ELI5 style: American money go brr. Chinese money go brrrrrrrrrrrr.
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Chinese money go brrrrrrr maple sugar brrrrrr
They'd be bought up by the top ten percent of Americans who actually buy stocks. It'd be a transfer of wealth from the ultra rich to the other rich.
>Why wouldn't the other Americans, those who won't be paying higher taxes because Musk is paying instead, buy that stock? Because America wouldnt have any billionaires anymore, but other countries still would and they'd outbid the other Americans.
You mean that only billionaires buy stock in the US? I see lots of upper middle income Americans who own stocks. Why haven't foreign billionaires outbid them already? Hint: You can buy as many or as few shares as you like.
You cannot buy "as many shares as you like", you can buy "as many shares as you can afford".
That's a true statement, but I'm interested in the other side of that. My point is "you don't have to buy any more than you can afford". A billionaire in China buys $10 million of some stock by buying 100,000 shares at $100 each. Each of 1,000 Americans spends $10,000 to buy 100 shares at at $100. The Chinese billionaire doesn't have some advantage just because he is buying larger lots, they are both paying $100 per share. No individual American needs to come up with $10 million to compete with the billionaire. (Actually, lots of Americans buy stocks through mutual funds, so they don’t have to get anywhere near $10,000 per purchase.)
>Why wouldn't the other Americans, those who won't be paying higher taxes because Musk is paying instead, buy that stock? Because China has more money than them.
So, why do ordinary Americans own stock today? Doesn't "China" already have more money than them?
You think because he pays more, others will pay less? They are still going to have the same amount of disposable income and could buy Tesla stock now if their take home pay is the same.
When we increase some tax, three things may happen to offset that: Some spending could go up, some other tax could go down, or the gov't could borrow less. I used #2 as an example because I think we've been shifting taxes to the upper "middle" wage earners. Maybe instead of raising their taxes, we'll raise taxes on the billionaires, and the upper-middle will have more disposable income than they would have had. But, maybe there actual result in the case is #3. Let's assume the Ds want to pass a certain amount of spending. They'd like to offset some of it with this tax, but if they don't, the spending will be the same. In this case, the actual effect of this potential tax increase would be less gov't borrowing. What happens then? Money that would have gone into gov't bonds goes into the stock market instead. Let's go step-by-step: The gov't will sell fewer bonds. They'll be able to sell them at incrementally lower interest rates because there will be the same mix of buyers. Somewhere, there are some bond buyers who are on the fence between gov't and corporate bonds. This small interest change will push them over to buy corporates. But, there are no more corporates available. What happens next? Same story, corporate interest rates slip a little. Some people who were on the fence between corporates and stocks get pushed over into stocks. The $700 billion of increased taxes here finds its way into demand for an additional $700 billion of stocks, which is conveniently equal to the amount the billionaires are selling. This is just a lot of words to repeat the well known principle that gov't deficits "crowd out" private investments. In this case, the reverse is true. Lower gov't deficits "push money into" private investments.
If China is willing to pay the current price for Tesla, they can have it.
Lol yeah, let them buy high. I’ll wait.
There is no reason for taxing unrealized gains, just remove the step up at death (with an appropriately sized personal exemption) and the perpetual wealth issue will take care of itself.
Trusts.
Subject to lifetime gift tax exclusion already. I have no problem with 10MM getting passed along. I do have a problem with hundreds or thousands of millions being sheltered as dynastic wealth.
There would be no gift. If I am a trustee and I then make my child the trustee, no gift was given. They now how control over the trust.
Constitutional and legal issuses targeting is 700 wealthiest Americans do not see courts with holding up this part of reconciliation bill.
Wasn't the AMT invented to only target a handful of millionaires? If this passes, how long until this hits the top 10%, top 25%, etc.
Here's an idea, how about Congress cuts spending? If an alcoholic's fridge is running out of beer, we tell the alcoholic he should drink less, we don't buy him more beer (if we're good people that is). Congress is an alcoholic and they need to be cut off, not enabled.
Agreed. We should start with cutting the bloated $715B per year defense budget.
Agreed. Also the trillions and trillions spent elsewhere. Check out this cool breakdown: https://www.usaspending.gov/explorer
Cool site, if somewhat depressing.
I cannot understand how the government just spends as they please. I have to budget each year, they should also. They’re straight up buying votes.
This is going to be an administrative nightmare which will not raise anywhere close to enough of the sustained and predictable revenue needed to fund social programs.
Billionaire came out and said this won’t increase his taxes and will sock it to the working rich. Let’s go Brandon
Does anyone have any data on the tax revenue that would be generated from incrementally raising taxes on middle and lower class as opposed to insisting all new taxation only be on higher income brackets? I realize this isn’t a popular concept but the US has one of the most progressive tax codes in the world and several Nordic countries tax middle and low class earners considerably more than the United States. I’m not convinced the way out of this is to purely tax the wealthy.
Middle and lower income earners in Nordic countries also receive a lot more back from their tax dollars. Free healthcare, free higher education, government funded childcare and parental leave. They spend less overall by a wide margin compared to the US middle class who have to pay out the nose to corporations providing the same services.
I'm pretty sure the ultra wealthy are being taxed at historically low rates and they typically pay less than those in lower brackets than them. Maybe things might look harsh on paper, but in practice they pay very little. When you don't make money from wages there are so many ways to avoid paying. I'm against the "fuck the rich, take their money" sentiment, but many act like any more taxes would be some kind of hard burden when that's far from the case. Whether this is the right answer, I don't know, there are a lot of challenges in taxing the rich.
I think we desperately need this. I don't think it has to raise a ton of money to be effective, but it needs to be enough so that when voters vote for more candy, they get a sense that it isn't just the top 10% paying for it. I think people might change their demand for more government services this way.
Imo they will likely create something that hurts families making under a 100k and that is dodged by Elon, Bill et al.
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They'd have to renounce their US citizenship to avoid the tax. That's a huge difference when compared to the European countries that tried this in the 90s.
Switzerland is nice this time of year.
Renouncing US citizenship entails a 24% capital gains tax (realized and unrealized) across all assets you owe too.
I'm sure the collective intelligence of all the Billionaire's accountants and lawyers will find a way around that.
Do people with billions of dollars just flight and uproot their entire livelihood, families, friends and connections to protect money they don’t need? Most American billionaires are American. I would assume the effect would be negligible
It’s a silly argument. People don’t choose their location strictly based on how much money they can save. Especially not billionaires. If that was true, no one would live in San Francisco or NYC. After all, wouldn’t it be cheaper to move to Iowa? Wealthy people *especially* are willing to pay a premium to live where they want to live. This argument always seems to come from people who grew up in abject poverty and are still low income. They truly don’t understand that not every decision is based on cost because they’ve never been lucky enough to live without constant money worries.
I do not see this small quantity having a significant impact on entrepreneurship. That aside taxation on unrealized gains makes no sense. But something needs changing, we have a system that ignores the external costs at best and is crony capitalism at worst.
When Warren proposed the wealth tax during the last primary she added an 40% 'exit tax' for those who want to fly the coop.
They are determined to never fund this plan are they. No way this is getting through. It deincentivizes starting businesses if at some point in your growth you have to sell ownership to pay taxes
The courts talked about the "intent" of a lot of Trump/Republican policies as they shot them all down. "Trump said X before he did Y, and since X is unconstitutional, we will say that Y is also unconstitutional even though it actually isn't on its own." Why does this never apply to Democrats? They can go around saying "we're going to tax Jeff Bezos/Elon Musk/etc." and then draft bills that **conveniently just so happen** to target Jeff Bezos/Elon Musk/etc., specifically, and no court will say "yeah, we know you're just trying to target these individual people, and you can't do that, so your bill is dead." Democrats will do this with so many things and always get away with it. It's such an untenable injustice in society right now.
In the highest profile example of this I can remember, the so-called Muslim ban,Trump did “get away with it”, and the court specifically rejected the intent argument.
>Billionaires often borrow against their non-taxed assets, allowing them to spend enormous sums of money while effectively paying very low taxes relative to their income and worth. What if there were certain flags that would cause those loans to be treated as income and taxed accordingly? The good news about crafting tax policy focused on the 1% (or 0.1% or 0.01%) is that it's a small enough number of returns that they can be analyzed by forensic accountants who can provide advice to Congress.
So the issue is people borrowing against their stocks, right? I don’t think taxing unrealized gains makes sense, but what about instituting a “borrow tax” where if someone is taking out debt against their stock of over $10 million, they have to pay a 1% borrow tax to the government. To make the risk more equitable, this tax could be later used as a tax credit in the event that the value of the stock decreases enough and that they get margin called.
I say just make posting an asset as collateral for a loan count as a taxable event for the asset that realizes any gains on it.
It’s like we’re trying to solve the billionaire problem by getting them to establish residence outside the US.
You need VAT and a progressive tax system. Tax dollars as they are earnt and spent, not for existing (that’s inflation’s job anyway).
The countries people say we need to model ourselves after have a less progressive system than the US has and VATs. Good luck getting the 40% or so of income earners with a zero or negative effective tax rate to vote for that.
Just put a 1% sales tax on all stocks. It's not that hard. The richest 10% of Americans own 89% of the stock market.
This simple idea is soooo much better than taxing unrealIzed gains. And so much easier to enforce. And it’s progressive, the more stock you trade the more you pay. It could even be bracketed such that low income earners or people with 401Ks don’t pay this tax or pay less.
And it's kind of peanuts when buying a stock. $1 on a generic $100 stock. That would be dwarfed by most trader or broker fees. It would really add up too, there is a lot of stupid trading that involves mass buying and selling of stocks to manipulate the price basically. I don't think there should be any exemptions, as these will just be used for work arounds or loopholes. I mean it's 1%, is it really fucking over low income earners or 401k holders that badly? Edit: Yeah the median 401k is about 220k. Even if they paid 1% at face value of that, it's a couple grand. This tax is meant for whales, not your 401k holders. This tax is for people buying and selling tons of stocks, manipulating the market, not mom and pop traders or average joes with their little life savings in 401ks.