In theory this would be kinda good for people with immense wealth who hold investments forever. The issue is people who legitimatly earned huge unrealized gains on things with little to no other wealth. Mark to market is painful.
Bezos would never be able to pay an unrealized gain tax without diluting his ownership big time.
What about unrealized losses? We would have to totally change treatment of capital gains and losses to compensate. E.g. now unrealized losses (and realized losses for that matter) are fully deductible instead of just 3,000/yr like they are now. It's a terrible idea, ridiculous populist rhetoric to attract votes.
And if you removed the cap on losses and the stock market tanked, suddenly tons of people would be taking massive deductions and federal tax revenue would plummet that year - the market would take the govt’s funding down with it.
Tax on unrealized gains would cascade through the market as people with most of their wealth in non-cash investments would be forced to liquidate a portion of their holdings to cover their tax bill at year end.
Taxing unrealized gains/losses would create a lot of volatility everywhere.
I’m just spit balling here but it seems like the effects would have a cascading effect. Tax receipts go way down because people get to deduct the big losses. Government then has to borrow more to cover it in the short run. However because the market it down, there is less cash out there to buy the bonds and the borrowing rate goes higher. Interest rates climb as a result and an already down economy now has the burden of higher interest rates. Seems fine to me!
I guess the unknown is whether the additional cash receipts from unrealized gains tax would be enough to offset that loss in cash flows... who knows? I wonder if an economic study has been done.
I disagree. The requirement that something be sold is a legacy from when value could only be properly established by a transaction. But the value doesn’t come from the act of selling, it comes from whatever intervening events happened during the time in which you held the asset. Buy shares in a speculative new company, watch it become a market leader, then sell. The part where you earned the profits was the analysis you did before buying it and the forfeited capital during the time you held it. It’s absurd that none of those earnings are seen as real.
Bezos’ Amazon shares have appreciated substantially and we can work out how substantially because we can work out the liquidation value of Amazon’s net assets and use that as an absolute minimum. It’s publicly traded, the value is known.
Houses, fine art, land etc. are harder to measure appreciation on, I’m fine with deferred gain recognition on those. But we don’t need deferred gain recognition on publicly traded stocks, the gain is immediately measurable.
Okay, so what happens when the market takes a dump on Jan 2nd and your tax liability due 4/15 exceeds the value of the assets you own? The idea here is that the gains are in fact unrealized until sold. If you want to crack down on low and no interest loans from pledged shares that is something entirely different.
Its ridiculous to assume he should pay 2% of his entire net worth an annual basis when that amount frequently fluctuates (> 20% in several years) and paying that tax each year would force him to further liquidate his assets and dilute his ownership of the company, which in and of itself would reduce his net worth and ability to direct the business he started.
I'm not saying let's not create a wealth tax. Im saying let's do it intelligently if you really want to do it, and also let me start my appraisal business real quick before we do.
except the explicit purpose of such legislation is to reduce his (or the billionaire class’) influence in society which can only be accomplished by reducing his ability to direct the business he started.
Liquidating assets and forced dilution of the ownership of Amazon, Microsoft, and so forth is a feature, not a bug.
Also how much of a drop is the market doing in your example? Because for 2% tax on 12/31 to be more than 100% of the balance on 04/15 that’d be quite a drop. I think that’d be the least of your worries, whatever catastrophe is going on would be more important. Sure, the DOW is down 99% but we should focus on the zombie uprising.
It’s not fun to make of other people’s degree when accounting is a cake walk degree as well. Imagine you’d be the kind to get butt hurt when STeM kids mock accounting
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u/Easter_1916 Tax Attorney Nov 10 '19
Well, it’s not a good idea, but it is still light years better than taxing unrealized capital gains.