Posted on 08/31/2024 7:20:23 PM PDT by Mr. Mojo
Some ideas are like horror movie villains. They’re dangerous, and no matter how many times they’re defeated, they never seem to die.
The misguided idea of taxing unrealized capital gains is back on the scene. Sen. Ron Wyden, D-Ore., floated a proposal to tax unrealized capital gains in 2021.
It was widely debated in 2022, when Congress was considering a multitrillion-dollar tax and spending package.
Opposition from Sen. Joe Manchin, D-W.Va., to taxing income before it’s earned helped defeat the idea then.
But the idea was far from dead. President Joe Biden included a version of the tax in his latest budget.
Vice President Kamala Harris also has endorsed the idea.
The first step in killing a bad idea is to recognize it for the scourge it is.
A realized capital gain—which we currently tax—is the difference between the price you sold an asset for and the price you paid for it. An unrealized gain, on the other hand, is an estimate of what that difference would be if you had sold an asset that you still hold.
The difference between taxing realized capital gains and unrealized gains is the difference between the government taxing people on income they’ve actually received versus the government taxing them on income they might receive later.
It would give the government the first claim on income, taking a big slice before the supposed owner of the asset ever sees a penny.
In effect, it would turn property owners into property renters, with Uncle Sam as their landlord.
Consider how an unrealized capital gains tax would work if it was applied to housing. You would be taxed on the increase in the value of your house regardless of whether you sold it and received any income out of it.
If you bought a house for $300,000, and the value rose to $500,000 a couple years later, you could be stuck paying tax on the $200,000 of gain even as you’re struggling to make mortgage payments. At a 25% tax rate, it would cost you $50,000 in federal taxes.
It would be like having a second mortgage, but in some ways worse.
At least mortgage payments end after 30 years. But you would never finish paying off your unrealized capital gains tax payments, as long as you owned the asset and its value was increasing—even if that increase was only from inflation.
And unlike mortgages, which give homeowners clearly defined payment terms, unrealized capital gains tax payments would be unpredictable, rising or falling depending on the housing market, inflation, and subjective assessments of a house’s value.
Unrealized capital gains taxes on business assets wouldn’t be much better. The value of company stocks fluctuate wildly, year to year and even day to day. If a company’s stock price skyrocketed at the end of one year and then plummeted at the start of the next, its shareholders could face devastating capital gains taxes that they may have no way of paying—even if they were to sell their shares.
Unrealized capital gains are often—as the name suggests—not real. But the taxes on the phantom gains would be very real.
Under an unrealized capital gains tax, the federal government would exert its primacy over Americans’ investments, taking the first dividends on profitable endeavors. But although the government would reap the first rewards, individual investors and business owners would bear the risk of losses.
Taxing the unrealized gains from ownership in a small, closely held business would present many of the same challenges as taxing unrealized gains on corporate stock or on housing. And it would present unique challenges.
Stock prices may be used to estimate public companies’ prices, but an unrealized capital gains tax on small business assets would require administratively burdensome business valuations. Small business owners—with limited access to capital markets—would be especially ill-prepared to deal with sudden surges in taxes whenever the company’s estimated value rose. As soon as small businesses achieved some success, the government would slam them with new taxes and stop their momentum.
Those in Washington who propose taxing unrealized capital gains generally include broad exemptions for certain asset classes and based on income or asset thresholds. These exceptions would give investors a path to escape from the tax, which is better than the alternative. The tax would have fewer direct victims as a result.
But the tax-induced capital flows still would wreak economic havoc—and without managing to raise much government revenue. So, the new tax would do little to satiate lawmakers’ appetite for more tax dollars.
And once a horror movie villain—or a bad idea—gets a foot in the door, it quickly can swing the door open wide and claim more victims. When the income tax was first implemented in 1913, it applied to less than 1% of the population, and most of those who paid it paid only a 1% rate. That small initial income tax spawned something far worse and more widespread over time.
Allowing the government to tax income that doesn’t exist sets an even more dangerous precedent.
Americans should slam the door on the idea of taxing unrealized capital gains, and lawmakers should kill the idea once and for all.
“It would give the government the first claim on income”
This is a LIE!
It’s not “income”, unless you realize the gain. otherwise, it’s imaginary income.
I’ve had stocks show unrealized gains one day and losses the next, what kind of bookkeeping nightmare is going to track that, after they’ve taxed on the day of the imaginary gain?
Total nonsense!
“Nice farm you got there“
Worst nightmare for many legacy farmers/ranchers*. Belgium, Ireland got nuttin on us for trying to control ag.
Think paying tax on purchase price of $1400/acre to $15,000/acre now . Years ago to settle an estate tax dispute .gov sent an assessor from California. Horrible
Extortion:
Leftists (formerly known as Democrat) Party, threaten taxes.
Donors to “Democrat” Party, then “pay” more to “Democrats” to not be subject to the tax . . . but are paying for a tax
Exemption.
Thus, via Extortion-and-Paid-for-Exemption, the “Democrat” Politburo gets a portion of cash flow that it *DEMANDS.*
Which is the goal. The market would crash and you'd be forced to sell to China/Blackrock. You WILL eat bugs and live in huge concrete apartments Soviet-style.
The goal is to get people to think that "ownership is too much trouble" - the same way they have taught people to think about operating a small business, now.
We have a ton of people on her with 100 million dollar net worth it appears.
Yes, well, this would be that on steroids!
IF done over & over again, you would keep paying taxes on the same ‘GAIN”.
Pay on “$200,000” the first time-—Then on THAT $200,000 Plus more the next year???
ALSO-—DO YOU GET A REFUND when the values DIVE?
ANYONE who has held a property for a long time KNOWS that values rise & fall.
THE BOOKKEEPING ON SUCH A PLAN WOULD SWAMP THE APPLICATION OF THE TAX.
THE COURTS WOULD BE FILLED WITH THIS & NOTHING ELSE.
Farms and ranches would be especially hard hit as land values might not correlate with the value of production. A farm or ranch that could be held for several generations of a family might have been originally purchased at what today would be considered ridiculously cheap amounts. These farms and ranches might be profitable, but only if the land was already paid for and not subject to mortgage payments. Subjecting farms and ranches to taxation based on the lands current market value, might easily cost more than the land could produce.
She bought in 2022. Huge property taxes on the $1.1M sale, many taxes and fees during closing. The following year she got a statement from the county assessor that since increases of property values were less than inflation, the new law (2019?) as applied to Prop 13 limited the reassessment to the lowest percentage between reassessment calculations of increased value and that of increased inflation. So she got a temporary reassessment upwards to 1% or so. This is a tax on unrealized capital gains, as long as she owns and isn't selling.
This year, she got a letter from the assessor that the new law allows adding on the difference between the temporary reassessment percentage and 2% for prior years, to a full 2% this year because increased home values percentage now exceeded the percentage of inflation rate. This accumulation of the last couple years (2022 & 2023) added to 2% allowed her reassessment to be more than 5% this year. I had to reread the letter multiple times and do the calculations to verify. If one were to sell during a property value decline, they can't recover the lost money of unrealized capital gains taxes, having gotten taxed on money they didn't make. County government are crooks, stealing via taxes that are excessive.
Shades of Prima Nochta.
“value of many assets will plunge to $0 because nobody would want them.”
The value of assets would be greatly reduced for sure—as buyers have to take into account the future taxes on appreciation over time.
It heavily increases the risk in any risk vs return calculation—which will particularly penalize potential new startups.
The fine print of the legislation could have bizarre effects.
For example—if fine art were excluded in the definition of assets the prices would skyrocket—if included the prices would plunge.
Needless to say the effect on the stock market would be devastating.
The wealthy folks would hire tax attorneys and rearrange their assets to avoid the tax.
Then .gov will have to go after less wealthy victims to gain the same revenue.
Rinse and repeat—that is the inevitable result.
Everything that is sold to “soak the rich”, ultimately only soaks the middle class.
If the congressroach doesn't officially own the property s/he is in, then too bad. They are still responsible for the tax.
After ten years, they are still affected under the same terms, at double the rate for the general public--for the rest of their lives.
Then we'll see if it still passes.
you have more confidence in the system than I do
the rule of law is out the window
It hasn’t even passed yet. Cart before horse big time.
You mean like property taxes?
Then it should be limited to $3000 in in gains. In short it would be the end of the US Economy. Worse yet if it is not adjusted for inflation that means the Gov could just increase inflation and take everything.
How do people get so dumb to even talk about such Idiocy?
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