Unrealized Gain Tax—A Coming Sea Change in FY2025 Budget Proposal(Wealth Tax)

Forbes ^ | 08/21/2024 | Andrew Leahey

[Kid Shelleen]

In President Joe Biden’s proposal in the Fiscal Year 2025 Budget of the United States Government, and more specifically in the General Explanations of the Administration’s FY 2025 Revenue Proposals, the Biden administration has proposed a slate of bold shifts in tax policy that could redefine high income tax planning and investment strategies.

Among the most striking initiatives in the FY2025 Budget Proposal is a set of proposals taxing unrealized gains—a concept ---SNIP-- . A shift in tax policy towards tapping revenue streams in unrealized gains is almost certainly on the horizon-

[Political Junkie Too]

But you initiated a transaction that is a known "tax event."

Taxing unrealized gains is based upon no initiating action whatsoever on the part of the stock owner who planned to hold onto those shares to build a long-term retirement portfolio.

Even taxing income is based on the initiating action of the worker converting his labor into compensation. People used to barter labor for goods. Now they barter labor for compensation and then spend that compensation on goods. Multiple taxable events are occurring with these transactions, but no taxable events are occurring to the long-term holder of shares of stocks.

-PJ

[Faith65]

bkmk

[Brian Griffin]

If you talked “taxing event” to the Founding Fathers, they would have thought you bonkers.

Articles of Confederation:

To all to whom these Presents shall come, we, the undersigned Delegates of the States affixed to our Names send greeting. Whereas the Delegates of the United States of America in Congress assembled did on the fifteenth day of November in the year of our Lord One Thousand Seven Hundred and Seventy seven, and in the Second Year of the Independence of America agree to certain articles of Confederation and perpetual Union between the States of Newhampshire, Massachusetts-bay, Rhodeisland and Providence Plantations, Connecticut, New York, New Jersey, Pennsylvania, Delaware, Maryland, Virginia, North Carolina, South Carolina, and Georgia in the Words following, viz.
“Articles of Confederation and perpetual Union between the States of New Hampshire, Massachusetts-bay, Rhode Island and Providence Plantations, Connecticut, New York, New Jersey, Pennsylvania, Delaware, Maryland, Virginia, North Carolina, South Carolina, and Georgia.

Article II. Each state retains its sovereignty, freedom and independence, and every Power, Jurisdiction and right, which is not by this confederation expressly delegated to the United States, in Congress assembled.

Article VIII. All charges of war, and all other expenses that shall be incurred for the common defence or general welfare, and allowed by the united states in congress assembled, shall be defrayed out of a common treasury, which shall be supplied by the several states, in proportion to the value of all land within each state, granted to or surveyed for any Person, as such land and the buildings and improvements thereon shall be estimated, according to such mode as the united states, in congress assembled, shall, from time to time, direct and appoint. The taxes for paying that proportion shall be laid and levied by the authority and direction of the legislatures of the several states within the time agreed upon by the united states in congress assembled.

https://www.archives.gov/milestone-documents/articles-of-confederation

Taxing property was the American norm. Taxing income is a more modern thing in the USA, temporarily during the Civil War and about seven years afterward, and permanently starting in 1913.

It is my understanding that Jefferson thought income taxation was unworkable.

[Brian Griffin]

“Taxing income is one thing; taxing property (like ownership shares in a company) is another. Taxing real property is yet another level.”

WIKI

Property Tax: The Revenue Act of 1861 instituted a tax on real estate, levied in proportion to each state’s population. While the act’s enforcement mechanism was limited, it formally established a system of tax districts, assessors, and collectors, laying the groundwork for the Internal Revenue Service’s formation on July 1, 1862. The property tax drew criticism from representatives of rural states: by taxing real estate and excluding other forms of personal property, the tax, they argued placed an undue burden upon large, sparsely populated states and territories in the West and Southwest. Though densely populated states such as New York were assessed at a higher rate due to a large population, a greater proportion of wealth in such states was invested in personal property other than real estate.

https://en.wikipedia.org/wiki/Revenue_Act_of_1861

[Political Junkie Too]

If you talked “taxing event” to the Founding Fathers, they would have thought you bonkers.

Yeah, but the Founding Fathers didn't have a stock market to deal with. The first stock markets weren't formed until several years after the ratification of the Constitution.

My accountant and my financial advisor don't think I'm bonkers when discussing it.

-PJ

[markman46]

i wonder if this will include a tax on dividends too

[Political Junkie Too]

Yeah, but you're still avoiding my point.

At what point does a tax become confiscatory?

I don't *think* government wants to kill the goose that lays the golden eggs, but that's what a confiscatory tax does.

If I have to sell my milking cow in order to pay a tax, I no longer have the income from selling the milk and the government no longer gets the tax from my income. Isn't it in the best interests of government to keep taxes in line with the people's ability to pay? Doesn't government want those income streams to remain viable over time?

Taxing unrealized gains is killing the golden goose and the milking cow for short term gain at the cost of long-term sustainability.

-PJ

[Tolerance Sucks Rocks]

This is greedy and potentially disastrous. Just tax the gains when they’re realized, when the recipients can anticipate what they need to pay.

[Political Junkie Too]

I do have another serious question for you.

My IRA is deferred income. I will have to start taking required minimum distributions (RMDs) when I turn 72. That's when the government assesses the income tax on those deferred earnings.

In the interim, the IRA is made up of a diversified portfolio of stocks, bonds, and cash, which appreciates in value over time. This unrealized gain is not subject to capital gains because it is deferred income in a before-tax account. There is no cost-basis associated with the holdings that were rolled over from my 401(k) into the before-tax IRA. Many acquisitions and divestitures have taken place during the life of the IRA, and none of them were taxable because the assets stayed within the IRA. Only my distributions for living expenses are taxable as ordinary income.

Is this IRA subject to an unrealized gains tax? I would say no, because it is not subject to a capital gains tax under normal situations. Only the holdings in my after-tax account are subject to capital gains.

-PJ

[Brian Griffin]

“At what point does a tax become confiscatory?

If your town was destroyed and you were the only person with coins (100) and the government needed to pay 100 soldiers, you’d have no coins left.

If your town was destroyed by a race riot and you were the only person with coins (100) and the government of President Kamala Harris needed to pay 100 ‘social justice’ warriors, you’d have no coins left.

WIKI

The Beatles began recording “Taxman” in April 1966, a month after Wilson’s landslide win in the 1966 general election. Coinciding with the song’s creation, Harrison learned that the band members’ tax obligations were likely to lead to their bankruptcy, and he was outspoken in his opposition to the government using their income to help fund the manufacture of military weapons. Drawing on 1960s soul/R&B musical influences, the song portrays the taxman as relentless in his pursuit of revenue.

As their earnings placed them in the top tax bracket in the United Kingdom, the Beatles were liable to a 95% supertax introduced by Harold Wilson’s Labour government; hence the lyric “There’s one for you, nineteen for me”

https://en.wikipedia.org/wiki/Taxman

“Democracy is two wolves and a lamb voting on what to have for lunch. Liberty is a well-armed lamb contesting the vote.” ~ (Benjamin Franklin)

“Make yourself sheep and the wolves will eat you.” ~ (Benjamin Franklin)

“If a man empties his purse into his head, no one can take it from him.” ~ (Benjamin Franklin)

“Whoever would overthrow the liberty of a nation must begin by subduing the freeness of speech.” ~ (Benjamin Franklin)

“Common sense without education, is better than education without common sense.” ~ (Benjamin Franklin)

“Moderation in all things – including moderation.” ~ (Benjamin Franklin)

“My refusing to eat meat occasioned inconveniency, and I have been frequently chided for my singularity. But my light repast allows for greater progress, for greater clearness of head and quicker comprehension.” ~ (Benjamin Franklin)

“Be civil to all; sociable to many; familiar with few; friend to one; enemy to none.” ~ (Benjamin Franklin)

“Remember not only to say the right thing in the right place, but far more difficult still, to leave unsaid the wrong thing at the tempting moment.” ~ (Benjamin Franklin)

https://www.internetpillar.com/benjamin-franklin-quotes/

As I have posted repeatedly:

Fighting now in Congress to send middle-class income and property taxation cap constitutional amendments to the states would add the electors of several deep blue states to Trump’s total and make Congress turn deep red come November.

[1FreeAmerican]

I tend to be a realist.
And those are not my own thoughts but what I think the enemy would do.
These people are after all - Democrats.

“I can barely make your taillights”...Love it!🤣

[socialism_stinX]

Taxing unrealized capital gains is a crazy, stupid, destructive idea. If unrealized gains are taxed when asset prices rise in a calendar year, then taxes would have to be refunded back to taxpayers by the US Treasury when asset values fall. Otherwise citizens would be taxed on income they didn’t actually earn, and that amounts to unconstitutional confiscation of private property. Refunding taxes back to taxpayers when asset values fall would greatly increase federal deficits in recession years and cause wild swings in deficits and total federal borrowing from year to year.

Also, this is a complete myth that sitting on financial assets and holding them through all the ups and downs in asset prices is a big windfall to investors. Hedge funds don’t do that. Instead they trade around in the markets and take advantage of big selloffs like the Obama selloff in 2009 and the Covid selloff in 2020. Hedge funds sell before they expect a major decline in a market, and then buy back financial assets at much lower prices. Some hedge funds go short (borrowing assets and selling them) before an expected decline and make more gains from short sales. Much more income can be made by trading around skillfully using fundamental and technical logic, and this extra income completely overwhelms capital gains taxes paid on trading gains.

The people who sit on assets and hold them year after year actually give up a lot of potential trading income, and help to limit the extent of market declines by holding onto assets and not selling them into bear markets. This is highly beneficial to the markets and the economy. It’s not some big windfall to sit on equities and bonds through all the ups and downs of markets, and that has actually been a terrible strategy so far in this century.

Taxing unrealized gains is a dreadfully bad idea and has no chance of getting 60 votes to pass in the Senate. They’d have to use the “nuclear option” and suspend the filibuster rule to pass this disastrous idea. This is one more reason why Trump really must win this election in November. The future of our country depends on this next election. We’ll be in big trouble if Harris wins, so everyone has to work to make sure Trump wins.

[lasereye]

The sooner Trump gets in the better we’re all be.

It would delay this stuff, but as soon as another Democrat is elected President with a Democrat Congress, it will be on the table.

[skr]

What Can Be Taxed, Unburdened By What Has Never Been Realized

[Trailerpark Badass]

Um, it’s been awhile since I took Civics, but I was unaware a President could unilaterally impose new tax regimes.

[griswold3]

Ha ha! Good one!

[griswold3]

KdF Wagen
You’d think they’d come up with an original idea 💡

[Sirius Lee]

You’d think they’d come up with an original idea

Speaking of which, this tax is one short step away from taxation based on imagination. The IRS thinks that you are rich. There's no actual proof, and you've never made more than 50K a year and don't have any stocks, but you owe them $500,000. Because.

[griswold3]

https://x.com/stormrobinson/status/1826023881859375241
How would Kamala’s tax on unrealized gains even work? Let’s say you buy $1000 worth of stock in 2025. In 2026, the value of that stock is $1100 so you owe Kamala $25 (25% of the $100 unrealized gain). Now say the value of that investment drops back to $1000 in 2027. Does Kamala give you your $25 bucks back? What if the stock goes even lower?
What if you have $100k in assets in 2025 and in 2026 the value of your portfolio grows to $110k. Now you owe Kamala $2500. You either pay that from your income or cash savings or you have to sell enough assets to cover a tax on an investment you haven’t even taken profits on yet. Let’s say you don’t have the free cash on hand so you have to sell enough assets to cover the tax. Is the sale on those assets you sold to pay taxes on unrealized gains in 2026 now subject to the 44.6% capital gains tax in 2027? If so, that’s another $1115 dollars you owe Kamala.
Communism sucks.

[Gen.Blather]

“How would Kamala’s tax on unrealized gains even work?”

Oh, my gosh! I’ve had an epiphany. (Or, possibly gas.)

People reenact historical events. They dress up in costumes and play out Civil War battles or The French Revolution or whatever. There’s nothing original in these reenactments. There can’t be or they wouldn’t be a reenactment. The Democrats aren’t trying to come up with new, workable policies. They’re reenacting some idealized version of Marxism because “this time we’re doing it right.”