Unrealized Gain Tax–A Coming Sea Change in FY2025 Budget Proposal?(forbes.com)
forbes.com
Unrealized Gain Tax–A Coming Sea Change in FY2025 Budget Proposal?
https://www.forbes.com/sites/andrewleahey/2024/04/30/unrealized-gain-tax-a-coming-sea-change-in-fy2025-budget-proposal/
118 comments
The Reddit /accounts were talking about this earlier this week and I think most of them had a pretty reasonable take.
1. If one uses an asset as collateral for a loan (be it stock or whatever else), for tax purposes treat that asset as sold, then immediately repurchased at the same price.
2. From there all of the usual tax laws can apply.
So in theory this should get at the core of the actual problem, while avoiding at lot of the messiness of taxing un-realized gains.
It's not perfect, but I think it helps align incentives well. Whoever is lending the money probably wants to know the value of the collateral. Lender and borrower are now both incentivized to come up with the real value at the time of the loan.
1. If one uses an asset as collateral for a loan (be it stock or whatever else), for tax purposes treat that asset as sold, then immediately repurchased at the same price.
2. From there all of the usual tax laws can apply.
So in theory this should get at the core of the actual problem, while avoiding at lot of the messiness of taxing un-realized gains.
It's not perfect, but I think it helps align incentives well. Whoever is lending the money probably wants to know the value of the collateral. Lender and borrower are now both incentivized to come up with the real value at the time of the loan.
So small business can't take out loans unless they can realize and be taxed on the full valuation of their company immediately? As much as I can appreciate the goal, this is absurd.
This is not about businesses taking out businesses loans. It’s about the owners of businesses using their shares as collateral for loans.
Most small business owners probably can’t even do this, because banks won’t accept their shares as collateral. So in a sense you could say this would even the playing field between big and small business.
Most small business owners probably can’t even do this, because banks won’t accept their shares as collateral. So in a sense you could say this would even the playing field between big and small business.
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why is everyone talking about small businesses when every proposal that's been published targets $100million + asset portfolios
Because income tax started as only targeting people making $3,000 a year, which was the top ~40% of earners in 1913. Once the door to a new government power is unlocked, it never closes it only gets more open.
> Once the door to a new government power is unlocked, it never closes it only gets more open.
I don't think "slippery slope" is a reasonable defense here, especially with the situation you're using as an example. The top 40% of earners is a lot of people, and pretty close to the number of people that pay positive income taxes today (50% of earners pay 97% of taxes). The slope you're using as an example doesn't look very slippery, especially given that 100+ years of the US changing completely has happened in the meantime.
I don't think "slippery slope" is a reasonable defense here, especially with the situation you're using as an example. The top 40% of earners is a lot of people, and pretty close to the number of people that pay positive income taxes today (50% of earners pay 97% of taxes). The slope you're using as an example doesn't look very slippery, especially given that 100+ years of the US changing completely has happened in the meantime.
Slippery slope arguments are absolutely legitimate when (a) dealing with policy proposals in relation to difference from a perceived "normal" situation, (b) discussing issues in which factions that wish to push the status quo toward an extreme endpoint manifestly exist and exert influence, and/or (c) there's a demonstrable history of incremental expansion of similar policies' scope and effects in evidence.
Yes, but parent's example presented none of those arguments.
The unsaid half of the example, which I assumed was understood for people on HN, was that income tax was initially presented as a small tax on the very well off which now impacts almost every earning American.
Was it presented that way though?
Judging by the timeline, it seemed like initial low rates had more to do with it being a new system, and less to do with some kind if "we will only do this to the rich" promise.
Also, they tried implementing income taxes previously, had it struck down by supreme court, then all the states got together to pass an amendment to allow income taxes. So, it was a pretty strongly supported change.
Honestly, I can get on board with "government tends to only grow in scope" point of view, I just don't think income taxes illustrate that point at all.
Judging by the timeline, it seemed like initial low rates had more to do with it being a new system, and less to do with some kind if "we will only do this to the rich" promise.
Also, they tried implementing income taxes previously, had it struck down by supreme court, then all the states got together to pass an amendment to allow income taxes. So, it was a pretty strongly supported change.
Honestly, I can get on board with "government tends to only grow in scope" point of view, I just don't think income taxes illustrate that point at all.
According to https://en.m.wikipedia.org/wiki/Revenue_Act_of_1913#:~:text=.... that "lot" was just 3% of the population.
That’s playing all sorts of games with the numbers, from 1917 the $2K threshold (50k in 2024) was at 2% tax rate with the top rate being 15% at $2m pa of 1917 dollars so ~$50m pa today.
1) Effective taxes aren't much different today. A married couple with no kids will pay < 5% on 50k. FICA is what makes it higher, so not exactly apples to apples.
2) You're choosing 1917, pre changes, to paint an inaccurate picture. Top rate went from 15% to 67% that year, and 77% the year after. Almost double today's top rate.
What happened was, we introduced a revenue system, and have changed it over time, often dramatically, as the country's needs have changed, both raising and lowering rates. We haven't gone down some crazy spiral of ever increasing tax rates. If anything, the tax situation for the rich has gotten better over time, not worse.
2) You're choosing 1917, pre changes, to paint an inaccurate picture. Top rate went from 15% to 67% that year, and 77% the year after. Almost double today's top rate.
What happened was, we introduced a revenue system, and have changed it over time, often dramatically, as the country's needs have changed, both raising and lowering rates. We haven't gone down some crazy spiral of ever increasing tax rates. If anything, the tax situation for the rich has gotten better over time, not worse.
I choose 1917 because it's both old - the point of this exercise - and right after a lowering of the band $3K to $2K and increased taxes in response to WWI. WWI was quite a dramatic event.
I'm not sure what you're arguing - that it changed dramatically or that it has not changed dramatically. If you're arguing it has changed dramatically then I guess we are in agreement.
You should also note that 1917 was prior to the introduction of sales taxes (1921) and social security taxes (1937). Looking at only federal income tax paints an rather incomplete picture when looking at total tax burdens.
"A married couple with no kids will pay < 5% on 50k" I assume they're dual filing for the 50K so 25K on average? The lower %16 percent of the population. A weird number to pick.
I'm not sure what you're arguing - that it changed dramatically or that it has not changed dramatically. If you're arguing it has changed dramatically then I guess we are in agreement.
You should also note that 1917 was prior to the introduction of sales taxes (1921) and social security taxes (1937). Looking at only federal income tax paints an rather incomplete picture when looking at total tax burdens.
"A married couple with no kids will pay < 5% on 50k" I assume they're dual filing for the 50K so 25K on average? The lower %16 percent of the population. A weird number to pick.
> I'm not sure what you're arguing - that it changed dramatically or that it has not changed dramatically.
Im arguing that the original comment, that income taxes weren't originally intended to be what they are today, or it was some kind of bate and switch, or slow bleeding, that led us to today. That was my read of thread parent anyway.
> You should also note that 1917 was prior to the introduction of sales taxes (1921) and social security taxes (1937). Looking at only federal income tax paints an rather incomplete picture when looking at total tax burdens.
We aren't arguing about total tax burden, we are arguing that a new kind of tax will/won't necessarily be abused and changed post introduction. Those three tax vectors prove that they won't be if anything, as they haven't changed much since introduction either.
>A married couple with no kids will pay < 5% on 50k" I assume they're dual filing for the 50K so 25K on average? The lower %16 percent of the population.
1) Most households were single income in 1917. 2) 50k was inflation adjusted equivalent to numbers that I was responding to. I didn't pick it at random, I chose it to show things hadn't changed much.
Im arguing that the original comment, that income taxes weren't originally intended to be what they are today, or it was some kind of bate and switch, or slow bleeding, that led us to today. That was my read of thread parent anyway.
> You should also note that 1917 was prior to the introduction of sales taxes (1921) and social security taxes (1937). Looking at only federal income tax paints an rather incomplete picture when looking at total tax burdens.
We aren't arguing about total tax burden, we are arguing that a new kind of tax will/won't necessarily be abused and changed post introduction. Those three tax vectors prove that they won't be if anything, as they haven't changed much since introduction either.
>A married couple with no kids will pay < 5% on 50k" I assume they're dual filing for the 50K so 25K on average? The lower %16 percent of the population.
1) Most households were single income in 1917. 2) 50k was inflation adjusted equivalent to numbers that I was responding to. I didn't pick it at random, I chose it to show things hadn't changed much.
Wealth may not trickle down, but taxes damned sure do.
I don't think "everyone" is talking about small businesses. Only people with an axe to grind against the legislation, who trot out "Small Business" to play the sympathetic victim.
Is a small business loan usually taken out with the entire company as collateral? Rather than just based on normal loan terms and risk?
(That sounds unlikely to me, but I know little enough about the intricacies of business finance that it could be true...)
(That sounds unlikely to me, but I know little enough about the intricacies of business finance that it could be true...)
Yes. It's very common to collateralize a loan with the total assets of the company, and often with personal guarantee on top of this for small LLCs without significant assets or credit history.
What is the goal here, actually?
Businesses =/= Businesses owners
For many small businesses, that is false. Sole proprietorships and pass through LLCs are extremely common.
And can those businesses currently take a loan to pay for the owner holidays or whatever?
I do not see in the article where it says the loan has to be used for personal expenses. In fact from what I can tell it just says unrealized gains will be taxed regardless of whether a loan is taken out or not. The loan example is just used as a justification.
You're the one who was talking about loans!
In response to "If one uses an asset as collateral for a loan" you wrote "So small business can't take out loans unless they can realize and be taxed on the full valuation of their company".
In response to "If one uses an asset as collateral for a loan" you wrote "So small business can't take out loans unless they can realize and be taxed on the full valuation of their company".
I was responding to the parent who also made no distinction that the loan was solely for personal purposes.
The comment was about using assets as collateral for loans. Your response was about something else - or maybe it was not about anything, I'm not sure.
A company can also get asset-backed loans using as collateral something the company owns - or it can get a completely different kind of loan where there is no specific asset used as guarantee.
A company can also get asset-backed loans using as collateral something the company owns - or it can get a completely different kind of loan where there is no specific asset used as guarantee.
Business can take loan if someone loans money to it. The owner of such business can't take loan against it and not treat it as capital gain.
Maybe it’s just a marketing problem then and it should be called asset collateral tax rather than unrealized gain tax, which on the face of it sounds kind of stupid.
Interesting.
How does this interact with something trivial like remortgaging a house?
Say I bought a house for 100k, cash. Now it's worth 200k. I want to take another 50k mortgage on it. Do I realize cap gains on 25% of my house, i.e. an increase of value on 25k to 50k, and then I'm liable for cap gains on 25k? At 20% say, that's 5k tax. Unpleasant for sure, but doesn't seem out of proportion.
How does this interact with something trivial like remortgaging a house?
Say I bought a house for 100k, cash. Now it's worth 200k. I want to take another 50k mortgage on it. Do I realize cap gains on 25% of my house, i.e. an increase of value on 25k to 50k, and then I'm liable for cap gains on 25k? At 20% say, that's 5k tax. Unpleasant for sure, but doesn't seem out of proportion.
I believe it is only on unrealized gains over $100m.
Yeah, I agree with this take. I think making an issue of unrealized gains isn't the real story here. Using unrealized gains/assets as collateral is the way the ultra-wealthy avoid large swaths of income tax.
I see two reasonable paths forward for taxing using assets as collateral:
1. Treat it as a sale and repurchase (as you described) and transform capital gains into a progressive system 2. Treat the sale as earning income for purposes of using the traditional income tax brackets.
Either way, you don't get into a weird speculative tax gray area. Rather it's when the ultra wealthy want cash-on-hand that they incur some kind of income tax penalty. Maybe even put in a reasonable exemption ($25-100k/year) that doesn't trigger tax so that middle class households aren't hamstrung by this.
I see two reasonable paths forward for taxing using assets as collateral:
1. Treat it as a sale and repurchase (as you described) and transform capital gains into a progressive system 2. Treat the sale as earning income for purposes of using the traditional income tax brackets.
Either way, you don't get into a weird speculative tax gray area. Rather it's when the ultra wealthy want cash-on-hand that they incur some kind of income tax penalty. Maybe even put in a reasonable exemption ($25-100k/year) that doesn't trigger tax so that middle class households aren't hamstrung by this.
>...Using unrealized gains/assets as collateral is the way the ultra-wealthy avoid large swaths of income tax.
There are many web sites that claim this, but are there any actual reliable stats on how many lifetime loans are being given out? It is common to make short terms based on using stocks, etc as collateral. But how common is it to have a lender be ok with either deferring interest for decades until the person dies or continually giving new loans out to cover the interest (on paper at least)? Doing a quick search, I have not found one stat on how many lifetime loans like this are actually being done. There is a treasury department page claiming that about 160 billion dollars in unrealized gains are not being taxed, but that isn't talking about stock being used as collateral, that is talking about simply the value of assets increasing - that is entirely different. (If unrealized nominal gains should be taxed, should decreases in the value of assets lead to a tax refund?)
According to this: https://finance.yahoo.com/news/jeff-bezos-sell-5-billion-185... Bezos has sold around $13.4 billion in stock in 2024. If he could easily avoid millions (maybe billions) of dollars of capital gains tax by this one simple technique, why wouldn't he have?
There are many web sites that claim this, but are there any actual reliable stats on how many lifetime loans are being given out? It is common to make short terms based on using stocks, etc as collateral. But how common is it to have a lender be ok with either deferring interest for decades until the person dies or continually giving new loans out to cover the interest (on paper at least)? Doing a quick search, I have not found one stat on how many lifetime loans like this are actually being done. There is a treasury department page claiming that about 160 billion dollars in unrealized gains are not being taxed, but that isn't talking about stock being used as collateral, that is talking about simply the value of assets increasing - that is entirely different. (If unrealized nominal gains should be taxed, should decreases in the value of assets lead to a tax refund?)
According to this: https://finance.yahoo.com/news/jeff-bezos-sell-5-billion-185... Bezos has sold around $13.4 billion in stock in 2024. If he could easily avoid millions (maybe billions) of dollars of capital gains tax by this one simple technique, why wouldn't he have?
One of the reasons I think politics is ok with income tax being where it is, is that the wealthy can currently avoid most of it. The wealthy can bring their money to bear to influence politics again to both broaden the scope so that the tax is more universally disliked and to create another carve out for themselves. Or at the very least situate themselves to benefit from government largess so that new taxes funding new spending is a net benefit for them.
My main concern is that it puts the government in a position to greatly benefit from inflation, even more so than it does now, and inflation will be the hidden tax that hurts the poor.
My main concern is that it puts the government in a position to greatly benefit from inflation, even more so than it does now, and inflation will be the hidden tax that hurts the poor.
That will cause quite a painful but interesting deleveraging, i like it.
My understanding of the proposal is that households worth more than $100 million would pay an annual minimum tax worth 25% of their combined income and unrealized capital gains. This doesn’t seem insane? In particular, that’s a hell of a residential property
My city passed a "mansion tax" for people who own multimillion dollar homes. However the threshold for where the extra tax kicks in isn't adjusted for inflation or the top X percentile of most expensive homes. So we're on track for the average single family homeowner to be paying the "mansion tax" in another decade or so. It's already hitting some multifamily buildings.
Also reminds me of AMT. When it was originally created, one of the selling points was that it would only impact 155 wealthy families, households who made the then-insane income of over $200k but paid very little in income taxes. By 2017, over 5 million households were paying AMT, particularly those in states with high SALT taxes where $200k/year doesn't afford as lavish of a lifestyle as it used to.
Also reminds me of AMT. When it was originally created, one of the selling points was that it would only impact 155 wealthy families, households who made the then-insane income of over $200k but paid very little in income taxes. By 2017, over 5 million households were paying AMT, particularly those in states with high SALT taxes where $200k/year doesn't afford as lavish of a lifestyle as it used to.
Fully agree. Every piece of legislation that mentions a dollar amount should be adjusted for inflation. That should be true for income thresholds all the way down to parking tickets.
With all these sorts of things where they promise it'll only affect subset X of people, and then in the future once its been passed it's then changed/extended to affect subset Y in addition, I wish someone would suggest some way to just add a clause in, something like "This law is only to target X subset and if anyone tries to change it to affect a different subset of people, or pass a new law that extends its scope to a different subset, all such laws are instantly made invalid and dropped from the books". Or something along those lines.
If they promise it'll only ever affect the "super rich", then encode that in the law and ensure us, by law, that's what it'll be. If they truly don't want to expand its scope further, then have a mechanism that enforces that.
(Of course, this is a separate issue from whether it's even moral to target subset X in the first place, which I won't get into).
If they promise it'll only ever affect the "super rich", then encode that in the law and ensure us, by law, that's what it'll be. If they truly don't want to expand its scope further, then have a mechanism that enforces that.
(Of course, this is a separate issue from whether it's even moral to target subset X in the first place, which I won't get into).
A: I think we should do more of X.
B: I'm concerned about that.
A: Okay, let's do X but in a much more limited way.
B: Okay.
<2 years later>
A: Hasn't X been great? Let's expand it.
B: Okay.
B: I'm concerned about that.
A: Okay, let's do X but in a much more limited way.
B: Okay.
<2 years later>
A: Hasn't X been great? Let's expand it.
B: Okay.
Yes here's the actual proposal. I'm sure it's not coincidence that it's left out of the Forbes article
> The proposal would impose a minimum tax of 25 percent on total income, generally inclusive of unrealized capital gains, for all taxpayers with wealth (that is, the difference obtained by subtracting liabilities from assets) greater than $100 million.
> Minimum tax liability would be reduced to the extent that the sum of minimum tax liability and uncredited prepayments exceeds two times the minimum tax rate times the amount by which the taxpayer’s wealth exceeds $100 million. As a result, the minimum tax would be fully phased in for all taxpayers with wealth greater than $200 million.
> The proposal would impose a minimum tax of 25 percent on total income, generally inclusive of unrealized capital gains, for all taxpayers with wealth (that is, the difference obtained by subtracting liabilities from assets) greater than $100 million.
> Minimum tax liability would be reduced to the extent that the sum of minimum tax liability and uncredited prepayments exceeds two times the minimum tax rate times the amount by which the taxpayer’s wealth exceeds $100 million. As a result, the minimum tax would be fully phased in for all taxpayers with wealth greater than $200 million.
Yes, this is better framed as a new Alternative Minimum Tax on people with net worth >$100M than a blanket tax on unrealized capital gains.
Imagine step 2 to realize the insanity. That household likely doesn't have disposable income that is greater than 25% of their unrealized cap gains, so what do they do?
1. Hope they can get a low interest loan to pay their taxes?
Or
2. Sell some assets. Think about what will happen to your 401k balance as wealthy people all over the US are forced to sell stocks. It will not be pretty.
1. Hope they can get a low interest loan to pay their taxes?
Or
2. Sell some assets. Think about what will happen to your 401k balance as wealthy people all over the US are forced to sell stocks. It will not be pretty.
lol come on. “I might have to sell some assets in order to pay money I owe” is not the end of the free market economy.
I'm not talking about the economy failing. I'm talking prices. What do you think happens to asset prices when there are only sellers (everyone with wealth has to sell). You think poor people will have enough cash to keep prices up?
When Elon sold in his latest Tesla round the stock tanked 30% over a couple months. Repeat for Bezos, Gates, etc.
When Elon sold in his latest Tesla round the stock tanked 30% over a couple months. Repeat for Bezos, Gates, etc.
If there are only sellers and no buyers the market collapses entirely. Luckily though people buy and sell stock all the time and even if the entire OMB estimated revenue from the tax (about $500b) was funded by selling stocks, that would represent less than 1% of total market volume.
Also, a household worth $100M is not going to suddenly be starving come tax time. And, they'll know in advance how much they need to pay because they have a CPA or a private wealth manager at the bank who can just tell them and set aside the money for April.
Hahaha. You think the people in that arena don't re-invest every possible dollar for more growth as soon as it hits their pockets? Cash flow is king to be able to pay for continuing leverage.
A sudden tax bill and the end of acquiring new debt are when massive wealth unravels.
Bubbles die when cash flows dry up.
A sudden tax bill and the end of acquiring new debt are when massive wealth unravels.
Bubbles die when cash flows dry up.
It is when a very large proportion of asset holders sell "some", increasing supply and therefore driving down prices.
I think AMZN and TSLA dropping 10% or whatever because Bezos and Elon have to sell more shares could be feelsbadman but it is not very close to the end of the free market economy.
CamperBob2(5)
The United States had inheritance taxes before it had a federal income tax.
The first federal inheritance tax in the U.S. was introduced in 1797 as a temporary measure to fund a potential war with France.
The first federal inheritance tax in the U.S. was introduced in 1797 as a temporary measure to fund a potential war with France.
unrealized gains in property are already taxed by "property taxes".
If I buy a $1000 dollars worth of stock, and use that to secure a $1000 loan. ok, fine, I don't see why that should be taxed at all. But if the lender believes the stock is worth lots more, and offers a $2000 secured loan, something's going on there.
I don't think it should be as much as actual capital gains, because it's not actually turned into cold hard cash. And there's still risk of the underlying asset price falling.
But if the lender says my $1000 is worth $2000, I'm getting some benefit of the higher value. And I can see why that would be taxed. I'd really want to see the details. probably that tax should be deducted from capital gains when finally realized.
I dunno. it's complicated.
If I buy a $1000 dollars worth of stock, and use that to secure a $1000 loan. ok, fine, I don't see why that should be taxed at all. But if the lender believes the stock is worth lots more, and offers a $2000 secured loan, something's going on there.
I don't think it should be as much as actual capital gains, because it's not actually turned into cold hard cash. And there's still risk of the underlying asset price falling.
But if the lender says my $1000 is worth $2000, I'm getting some benefit of the higher value. And I can see why that would be taxed. I'd really want to see the details. probably that tax should be deducted from capital gains when finally realized.
I dunno. it's complicated.
The purpose of this isn't for someone who buys $1k of stock then uses that as collateral for a $1k loan.
It's for someone who has zero traditional income, but owns stocks worth $100M+, and uses, say, $2M of that as collateral for a $2M loan so that they can have liquid assets.
It's for someone who has zero traditional income, but owns stocks worth $100M+, and uses, say, $2M of that as collateral for a $2M loan so that they can have liquid assets.
I used small numbers to focus on the mechanism. I think the point is, if I purchased the sock for $100M+, that loan shouldn't be taxed. If I purchased that asset for $1M, and take a $2M loan, only the second M would be, in some sense, realized, and subject to the tax.
But... how are they repaying the loan? Selling a little bit of stock now and then, which is then taxed?
No.
Let's say I have $100 million. Every year, for 50 years, I get a $2 million loan against only $2 million of my asset. The loans keep rotating and keep going.
At the end of 50 years, I die. When I die, the assets go to my estate AND (and this is important) my assets base value is rebased to current values.
My heirs sell some assets to pay off the loans. BUT the assets have been rebased to current value, so there is no tax due (since sell value is the same as base value).
Let me repeat.
My estate pays NO TAXES at all since the assets were rebased.
That's called tax efficiency ;-)
That's called tax efficiency ;-)
Step up in basis on death is its own separate and obvious problem to fix (which the Democrats have also proposed doing).
Huh. What about estate taxes? Or is that possible to dodge as well?
Often it's repaid with another loan. If you have 100m in stock assets to leverage, you could literally go your entire life without needing to ever actually sell the stock to pay the rolling loans, even if your 100m of stock never appreciated in value, which is unlikely- in reality that stock that's collateral is still making you even more money.
may be it shouldnt be the same as capital gains, but it should be related. like maybe it should be (capital gains tax rate - interest rate of loan) else it will simply be a way to continue to pay less taxes and still have your income as cash on hand
>> unrealized gains in property are already taxed by "property taxes"
Not at a federal level.
Not at a federal level.
Especially when the stated concern is actual income already realized. Why not just tax the income?
Because ultra rich people like Bezos can dodge taxes by taking loans against their unrealized gains indefinitely.
Yes that’s the stated concern. The proceeds of a loan is realized income. Why not tax it?
It is understandable why it wasn’t taxed historically, but as the article says, the market is changing.
It is understandable why it wasn’t taxed historically, but as the article says, the market is changing.
Yeah, it makes a lot more sense to treat liquidity achieved by collateralizing capital gains on assets as realized gains, and tax it as income, then to allow for blanket taxation of unrealized gains.
But I'm still not sure what problem any of this is trying to solve in the first place. Does anyone seriously think this would solve the federal budget deficit?
But I'm still not sure what problem any of this is trying to solve in the first place. Does anyone seriously think this would solve the federal budget deficit?
Taxes aren't really for budgetary matters. A government can simply print money for that. Taxes are mostly for:
1. Data collection.
2. Behaviour incentivization/disincentivization.
3. An avenue for money destruction.
With inflation concerns still lingering, #3 is on minds. We also are coming to recognize that we don't actually have a great handle on how much wealth is out there, which is no doubt why this seeks to tax the wealth and not the associated income. But I suspect the greatest driver is that the general public are increasingly coming to think that the rich are not behaving in desirable ways and want to change their behaviour, with this being an appeal to that.
1. Data collection.
2. Behaviour incentivization/disincentivization.
3. An avenue for money destruction.
With inflation concerns still lingering, #3 is on minds. We also are coming to recognize that we don't actually have a great handle on how much wealth is out there, which is no doubt why this seeks to tax the wealth and not the associated income. But I suspect the greatest driver is that the general public are increasingly coming to think that the rich are not behaving in desirable ways and want to change their behaviour, with this being an appeal to that.
> destroy small business
On the All-in Podcast they said it was only on unrealized gains over $100m. This is meant to target the Bezos and Musks of the world who can avoid taxes by borrowing against unrealized gains.
On the All-in Podcast they said it was only on unrealized gains over $100m. This is meant to target the Bezos and Musks of the world who can avoid taxes by borrowing against unrealized gains.
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'Unrealized Gains' is one of the methods by which the wealthy avoid paying taxes. When you read the article about 'Billionaire X paid 2% taxes this year' this can be the cause.
It works like this: you pay taxes on income, or realized gains (sold your stock). But you don't pay taxes on unrealized gains.
You have TSLA/AMZN/NVDA stock which has gained $10M, and you have a mansion/yacht payment coming due. You could sell the stock and pay $2M in taxes...
OR
You can get a loan with your stock as collateral. You may pay 7% interest but you still OWN the stock and the S&P grows at a rate of 10%, netting you a 3% annual profit on your collateral stock. AND the interest might be tax deductible offsetting other income taxes you may owe. You pay 0% taxes because you didn't sell anything.
Search for 'buy borrow die' for more resources on this strategy. This new tax proposal is trying to address the problem that the most wealthy individuals in our society pay a much lower percent in taxes compared to the average individual using this type of strategy.
It works like this: you pay taxes on income, or realized gains (sold your stock). But you don't pay taxes on unrealized gains.
You have TSLA/AMZN/NVDA stock which has gained $10M, and you have a mansion/yacht payment coming due. You could sell the stock and pay $2M in taxes...
OR
You can get a loan with your stock as collateral. You may pay 7% interest but you still OWN the stock and the S&P grows at a rate of 10%, netting you a 3% annual profit on your collateral stock. AND the interest might be tax deductible offsetting other income taxes you may owe. You pay 0% taxes because you didn't sell anything.
Search for 'buy borrow die' for more resources on this strategy. This new tax proposal is trying to address the problem that the most wealthy individuals in our society pay a much lower percent in taxes compared to the average individual using this type of strategy.
I think most people are OK with the $100M+ thresholds but are uneasy about the incentives this sets up where the government can extract large amounts of money from inflation which is in effect a tax on the poor and in general benefits the asset holding rich. And there is a reasonable expectation that the bands will lower over time in both nominal and real terms to cast an ever wider net.
I have long maintained that this has to happen mathematically because the government needs more money and there are not many places where they can get it. A high enough unrealized gains tax coupled with a high enough inflation is in effect a wealth tax. A high enough wealth tax can in effect capture a large chunk of the profit from the wealth, theoretically it could go higher than 100% of profit (e.g. 50% income tax, 6% inflation, %4 profit on wealth = %2 profit after taxes - %3 tax on nominal asset gains = -1% p.a. in real wealth. It has the real potential to be confiscatory in nature. Even the risk of this would likely result in capital flight so this tax plan would have to be exported globally to limit the number of places that capital can escape to.
I have long maintained that this has to happen mathematically because the government needs more money and there are not many places where they can get it. A high enough unrealized gains tax coupled with a high enough inflation is in effect a wealth tax. A high enough wealth tax can in effect capture a large chunk of the profit from the wealth, theoretically it could go higher than 100% of profit (e.g. 50% income tax, 6% inflation, %4 profit on wealth = %2 profit after taxes - %3 tax on nominal asset gains = -1% p.a. in real wealth. It has the real potential to be confiscatory in nature. Even the risk of this would likely result in capital flight so this tax plan would have to be exported globally to limit the number of places that capital can escape to.
Can you pay your tax on your unrealized gains with unrealized money?
> If, however, we consider the fact that the aforementioned billionaire could borrow money using the appreciated stock as collateral — perhaps, say, to purchase a social media company — we might feel somewhat differently. After all, absent some mechanism by which the billionaire can be taxed, they can at least in theory defer ever realizing their gains by continually borrowing against their stock rather than selling any of it.
This line is a great way to both throw shade and to make it clear that there are real-world examples of people currently exploiting this strategy.
I wonder if it would be possible to just say, "If you have unrealized gains and aren't borrowing against them, then no taxes are necessary, but if you attempt to borrow against them, then they are treated as 'realized' even if they're not sold."
That protects the interests of people who don't have the option to realize their assets (e.g. no liquidity event available) while still closing the loophole that allows billionaires to borrow against those assets tax-free.
This line is a great way to both throw shade and to make it clear that there are real-world examples of people currently exploiting this strategy.
I wonder if it would be possible to just say, "If you have unrealized gains and aren't borrowing against them, then no taxes are necessary, but if you attempt to borrow against them, then they are treated as 'realized' even if they're not sold."
That protects the interests of people who don't have the option to realize their assets (e.g. no liquidity event available) while still closing the loophole that allows billionaires to borrow against those assets tax-free.
Surely this law that specifically effects holders of the assets we all have our retirements in will have no externalities which effect me.
If you want capital flight this is how it starts. If this went into effect I would owe taxes on several hundred thousand dollars in gains that I can't afford, or I couldn't afford unless I sold stuff, causing more taxable gains.
Seychelles shell corp looking pretty good right now.
Seychelles shell corp looking pretty good right now.
Don't forget once this mass sell off happens it's likely to tank the entire economy. But at least for a brief period the federal government will have to borrow $1 trillion instead of $1.5 trillion to cover the deficit.
I'm under the impression that this policy would only apply to individuals with over $100m in assets. I'm sure there's reasonable provisions that could be applied to this with respect to liquidity. These proposals are obviously targeted at individuals like Jeff Bezos who do things like take out loans against their unrealized gains so they don't have to pay taxes on their wealth.
Policy targetted at one person, or a small heterogenous group of people, is not good policy.
Okay so are you just against progressive tax policy then? I don't really find myself having a lot of sympathy for people with over $100m in wealth, who seem to not be paying much in taxes relative to that wealth.
Nor do I! I am as envious of them as anyone else. I don't own a home and likely never will, and it's because of rich people (and black rock) moving in a buying up homes for speculative/investment reasons mostly. Envy and housing market competition aside, morally it's a "camel through the eye of a needle" thing. Rich people should give more wealth away, for moral reasons.
But I also think policy shouldn't be based on (these) sentiments alone. Policy should be judged by it's net impact. This seems like absudly myopic policy, coming from the same bright minds who gave us a 2 trillion dollar stimulus package they named "inflation reduction act" that was a net negative for working people, but a boon bureaucrats and other industry special interests.
But I also think policy shouldn't be based on (these) sentiments alone. Policy should be judged by it's net impact. This seems like absudly myopic policy, coming from the same bright minds who gave us a 2 trillion dollar stimulus package they named "inflation reduction act" that was a net negative for working people, but a boon bureaucrats and other industry special interests.
People who have $100 million dollars have that money because the United States is a developed, mostly politically stable country with a highly skilled workforce and a massive military. They should pay into the system that made them so absurdly rich.
I also disagree with assessment of the stimulus and the inflation reduction act. In terms of monetary policy, juicing the economy with stimulus is exactly what you're supposed to do during times of economic crisis. Policymakers wanted to avoid the slow recovery of 2008. The ultimate result of post-covid monetary policy is that we had a brief period of major inflation (much of which was caused by pandemic and war related supply shocks) but things are getting back to normal and we've largely avoided the worst outcomes. With respect to the inflation reduction act, large investments were needed in infrastructure maintenance, onshoring manufacturing, and tackling climate change. That law did all those things, so I don't really care what they call it tbh.
I also disagree with assessment of the stimulus and the inflation reduction act. In terms of monetary policy, juicing the economy with stimulus is exactly what you're supposed to do during times of economic crisis. Policymakers wanted to avoid the slow recovery of 2008. The ultimate result of post-covid monetary policy is that we had a brief period of major inflation (much of which was caused by pandemic and war related supply shocks) but things are getting back to normal and we've largely avoided the worst outcomes. With respect to the inflation reduction act, large investments were needed in infrastructure maintenance, onshoring manufacturing, and tackling climate change. That law did all those things, so I don't really care what they call it tbh.
It's a strange thing to me that it is impossible to stop foreign entities from extracting value from our country. It makes it seem as though we do not have sovereignty in our own home.
if you are worried about being able to afford the taxes on your assets then you just plain arent rich enough for it to apply to you, dont worry you are safe
This is almost certainly untrue. The issues is that at any asset level, the tax itself can force a sale, which forces realization of gains. Whether that is on-balance more than the value realized is another question, but it definitely could force a sale at any asset level depending entirely on the ratio of your liquid to non-liquid assets.
So, in effect, the question is, should the government use tax as a club to force you to sell assets? Does this have any benefit for the economy/society?
So, in effect, the question is, should the government use tax as a club to force you to sell assets? Does this have any benefit for the economy/society?
Any asset level over $100mm you mean.
Given historical precedence, it's almost a certainty that it will not stay at that level, but regardless the context of my response was someone basically saying that high net worth individuals wouldn't have a problem paying the tax, and that's almost certainly not actually true.
Would this new tax create any more STUFF? The economy does not produce money - it produces stuff. Stuff like food, medicine and video games.
Does taking this money from people - even very rich people - produce any additional stuff for the rest of us to consume? I don't see how. I can't eat money. I can't live in money.
Will these rich people consume less stuff for themselves? Will it be enough less to matter to any of the rest of us? I doubt it.
So what's the point of all this? How about we focus on producing more stuff, so that we have more stuff to live in, eat, or treat our bodies. If we produce more stuff, we will have more stuff.
Taking money from rich people and giving it to everybody else will not help everybody else, since there will not be more stuff for them to buy.
Does taking this money from people - even very rich people - produce any additional stuff for the rest of us to consume? I don't see how. I can't eat money. I can't live in money.
Will these rich people consume less stuff for themselves? Will it be enough less to matter to any of the rest of us? I doubt it.
So what's the point of all this? How about we focus on producing more stuff, so that we have more stuff to live in, eat, or treat our bodies. If we produce more stuff, we will have more stuff.
Taking money from rich people and giving it to everybody else will not help everybody else, since there will not be more stuff for them to buy.
That's looking at the situation too simplistically.
Stuff is produced when there is demand for it. When people have less money to spend, there is less demand.
If this tax puts more money in the hands of the bottom 90%—and especially the bottom 50%—it will increase their buying power, which will increase demand, which means that, in all likelihood, more goods will be created for them to buy.
...I think it's also worth noting that for the vast, vast majority of people, what's standing in the way of them buying stuff is not the lack of stuff available to buy: it's lack of funds to buy it with. So on that front, too, your analysis doesn't really hold true.
Stuff is produced when there is demand for it. When people have less money to spend, there is less demand.
If this tax puts more money in the hands of the bottom 90%—and especially the bottom 50%—it will increase their buying power, which will increase demand, which means that, in all likelihood, more goods will be created for them to buy.
...I think it's also worth noting that for the vast, vast majority of people, what's standing in the way of them buying stuff is not the lack of stuff available to buy: it's lack of funds to buy it with. So on that front, too, your analysis doesn't really hold true.
How do ideas like this actually get taken seriously? Is this just for votes? I’m all for the end goal here but mandating it by fiat seems to ignore various unpredictable second order effects that could crash the economy and drive innovation out of the U.S. Too many unknown unknowns.
I would be much more in favor of implementing universal basic income instead of taxing unrealized capital gains. If the stock market + inflation + pledged assets is a gradual way to transfer more wealth to the already wealthy, then UBI would be a much “smoother” counterbalance to this process.
I would be much more in favor of implementing universal basic income instead of taxing unrealized capital gains. If the stock market + inflation + pledged assets is a gradual way to transfer more wealth to the already wealthy, then UBI would be a much “smoother” counterbalance to this process.
I’ve been trying to understand how the budget proposal process works, including how it is voted on and approved, but I couldn’t find much information.
For example, with FY2025 starting on October 1, 2024, does this mean any proposed tax rate hikes would take effect on that date, or would they start on January 1, 2025?
Additionally, since Trump’s tax cuts are set to expire on December 31, 2025, does this guarantee that tax rates will remain unchanged until that date?
For example, with FY2025 starting on October 1, 2024, does this mean any proposed tax rate hikes would take effect on that date, or would they start on January 1, 2025?
Additionally, since Trump’s tax cuts are set to expire on December 31, 2025, does this guarantee that tax rates will remain unchanged until that date?
Congress can change the rates at any time, and they can set the effective date to any date. Whether they would do that or not is an open question.
Is there a way to track Congress’s activities related to potential tax rate changes? I’d like to stay informed and avoid being caught off guard by any sudden changes.
I’ve looked into this, but it’s more complicated than I expected. For example, Congress votes on 12 separate appropriations bills related to the budget, and I’m not sure which ones impact tax rates or when those votes are scheduled?
I’ve looked into this, but it’s more complicated than I expected. For example, Congress votes on 12 separate appropriations bills related to the budget, and I’m not sure which ones impact tax rates or when those votes are scheduled?
If this passes, I hope the courts strike it down as unconstitutional on the grounds that unrealized gains don't qualify as "income" under the 16th amendment.