Taxing unrealized gains

[Ron]

https://twitter.com/PeterSchiff/status/1732515628467056765

If the Supreme Court rules in favor of the government, and allows it to redefine income to include any unrealized appreciation in any asset, then it will grant the Federal Government a new power to nationalize the entire asset stock of the nation. In hyperinflation, the only refuge people have is the ability to hold real assets and never sell them. But if the Federal Government can claim unrealized inflationary gains as being taxable income, then almost all Americans will be forced to sell their assets just to pay their tax liabilities. But with all assets up for sale at once, the most likely buyer will be the Federal Government itself, which will pay in near worthless paper. In one decision, the Supreme Court would have rendered the Constitution meaningless, effectively illuminated private property rights, and provided the Federal Government with the legal mechanism to pull off a communist revolution without having to fire a single shot.

The honking in clown world intensifies and the ponzi scheme approaches collapse.

[RoadKingLarry]

There IS a solution but it would not be pretty or fun.

[Ben]

The commies have been talking about this for years. I see it as a low probability, but if it were ever to pass, I think that would be the "kill them all" line for a lot of people. I can only imagine all the senior citizens that would be living under bridges when they owed "profit" taxes on the home they bought in 1970 for $30K that's worth $300K now. That goes for a lot of younger people as well. Not to mention all the other consequences, intended and unintended, that would arise from this commie of a move.

It's very similar to what they were (and I guess still are) always screaming about in CA about eliminating Prop 13, which froze property tax increases to 2% per year. Eliminating that would potentially have people paying like $80K per year in property taxes along the CA coast. Or blow up the housing market, with the consequences that go with that.

[Ron]

They would likely institute a separate graduated scale with lower tax rates, probably with a lot of exemptions.

They're thinking "How warm can we make the water without making them jump?".

[K Frame]

"They would likely institute a separate graduated scale with lower tax rates, probably with a lot of exemptions."

BBBBBBBBBWWWWWWWWWWWWWWWWWWWWWWWWHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAH!


The spending spree those fucknuggets in Washington would go on would be absolutely monumental. Waving the prospect of a wad of cash in front of a politician is like waving a bunch of free fentanyl in front of that skanky bathroom 'ho Millcreek talked about. They both look like Gollum when they see a chance to get their precious...

Democrats AND Republicans alike would compete to see who could fund the most useless programs in the shortest amount of time...

"Hi, Congress, we'd like $500 million to study the effect that hemorrhoids have on the sex lives of penis-equipped individuals in Ulan Bator."

APPROVED!

"Hi, Congress, we'd like $750 million to study the cultural significance and impact of white male man caves on the light beer industry."

APPROVED!

It would be absolutely horrendous.


I've had one question about this bullshit all along, though.

If these bastards want to tax unrealized gains, have they written in anything to allow deducting unrealized losses?

I asked that of Congressman Gerry Connolly a couple of years ago. He's the ultra-liberal ahole who represents my district.

He sort of got this weird look in his eyes and didn't say much...

I'm sure that he was thinking "WHAT? Give you some of your imaginary money back? Are you insane?"

[Ben]

If these bastards want to tax unrealized gains, have they written in anything to allow deducting unrealized losses?

Very good point, though we likely all know the answer.

[WLJ]

So will the Biden family's unrealized bribes be taxed?

[zahc]

I've said it before but as long as they are leaving tax-advantaged accounts like IRAs, Roths, and 401ks, which would be completely changing the rules for those accounts, this is really a nothingburger for most people. For normal securities the government already has dibs on the taxes whenever you sell anyway. Paying the taxes earlier is just paying something now that you would have to pay later, which can even be advantageous and I've done it before on purpose to raise my tax basis. Overall I'm not a fan and there's a lot of things the government could tax instead that would be more efficient. But this is not in principle giving the government any money they weren't going to get anyway. Just changing the accounting.

[cordex]

Zahc,
With the exception of very simplistic and short term transactions, that is simply not accurate.

[sumpnz]

Zahc,
With the exception of very simplistic and short term transactions, that is simply not accurate.

Yup.

[AZRedhawk44]

Am I understanding the proposal correctly, that under scenarios like these:

1. I buy a house at some point in the past.  Perhaps I bought it for $50k, or perhaps I bought it for $250k.  Regardless, I'm now assessed a gains tax on its value compared to when I bought it, and its value on the current market is $400k so I'm taxed anywhere from $350k to $150k depending on the difference in purchase price?  How often?  Every year?  Just once?

2. I buy some stocks.  I spend $10k on it, 10 years ago.  Said stocks are now worth $50k.  I pay a tax on the $40k in gains even though I didn't sell the stocks?  When?  How often?

Are they asserting that 401k's and such are exempt, but any other investment you make is not?

If so, that's some merry horseshit.  Can't have the plebes climbing out of the little people bucket.  Making your first little fortune is the hardest part of making a larger one later.

[Ben]

Are they asserting that 401k's and such are exempt, but any other investment you make is not?

If so, that's some merry horseshit.  Can't have the plebes climbing out of the little people bucket.  Making your first little fortune is the hardest part of making a larger one later.

On the first, they are always talking about hitting 401Ks. I don't know that it's a high probability, but if it ever happens, we might as well just call ourselves Venezuela Jr.

On the second, absolutely true. Making money by sitting on my ass is pretty easy for me now, but making the money to have the money that lets me make more money by sitting on my ass was a LOT of hard work and sacrifice. Stopping people from making that jump is essentially creating a serf class, IMHO.

[sumpnz]

Am I understanding the proposal correctly, that under scenarios like these:

1. I buy a house at some point in the past.  Perhaps I bought it for $50k, or perhaps I bought it for $250k.  Regardless, I'm now assessed a gains tax on its value compared to when I bought it, and its value on the current market is $400k so I'm taxed anywhere from $350k to $150k depending on the difference in purchase price?  How often?  Every year?  Just once?

2. I buy some stocks.  I spend $10k on it, 10 years ago.  Said stocks are now worth $50k.  I pay a tax on the $40k in gains even though I didn't sell the stocks?  When?  How often?

Are they asserting that 401k's and such are exempt, but any other investment you make is not?

If so, that's some merry horseshit.  Can't have the plebes climbing out of the little people bucket.  Making your first little fortune is the hardest part of making a larger one later.

Presumably once taxed as such the "cost basis" would rise to the valuation at the time it was taxed.  So if your house/stocks/etc cost $X when bought and are now worth $Y, if they subsequently go up to $Z you'd only be taxed on the Z-Y amount.

How it works if the value drops is unclear.  Most likely you'd be allowed to write that off against other gains, or it would simply mean no capital gains tax owed until the property appreciated beyond the original valuation.  I'd imagine though that if you used a loss to offset other gains you'd wind up with that lower value as your new cost basis.

[K Frame]

Proponents of this proposal say it will only affect those worth over $100 million and that it's needed to make sure that those ultra wealthy people...

wait for it...

wait for it...

PAY THEIR FAIR SHARE!!!

The left LOVES that *expletive deleted*ing trope. The inference that the wealthy somehow are gaming the system to the point that they're getting away scott free and riding the backs of the average American.

What a crock of *expletive deleted*it.

There are some other problems with this, as well, the biggest being that it would change the fundamental nature of the IRS from a tax collection entity to an asset evaluation entity. Gee, I wonder how that will work out?

Then there's the issue of scope creep.

Hey, that alleged $360 billion we were going to realize by making the rich PAY THEIR FAIR SHARE! ?

Well, it didn't happen, so we need to make those worth $50 million or more pay their fair share, too.

Few years later, the "ceiling" goes through the basement again...

Then there's the example of the AMT, or Alternative Minimum Tax.

Passed sometime in the 1960s to make a very small group of tax payers PAY THEIR FAIR SHARE after they had invested lots in government securities, which at the time had various tax shields in place.

The AMT law was so poorly written, and so ignored by Congress, that over the years the number of people who had to file AMT rose from hundreds, to thousands, to millions.

It took nearly 40 years of taxpayers screaming bloody murder for Congress to get off their collective lazy asses and do something about that.

In 2016 I nearly got caught by AMT. Had I been caught in it, the results would have been financially devastating.

Making less that $100,000 a year, my tax bill would have gone from regular withholding numbers (I forget how much it was and I'm not digging out my returns) to nearly $35,000.

All of my deductions would have been wiped out, including my mortgage interest and my 401K contribution deduction.

All because the Congress sat on their lazy *expletive deleted*ing asses and allowed that tax to burn middle-income Americans who were never intended to be its target.

[sumpnz]

I'm not so so they didn't intent it to, eventually, ensnare the middle class. 

[cordex]

But wait, it's worse than that.  Even if losses are perfectly accounted for and in a fair manner the idea of taxing unrealized gains sucks for a variety of other reasons.

If a large asset increases in value quickly it can result in a tax liability greater than the owner's ability to pay without selling the asset.  So now instead of being able to hold the asset until you're ready to sell, you're forced to sell just to pay off the government.  This already happens regularly when inheritance taxes kick in, I guess some people think it should be an annual thing.  Of course, forced sales might also depress actual sales value, so you've got that going for you too.  Sure, for people with a lot of liquid assets it's not as big a deal, but if someone has invested a lot of money into something, an annual valuation tax could easily force the sale of that asset.

For some assets, government valuation can differ significantly from market valuation.  Sure, if all you ever are talking about are stocks and bonds there might be an easy way to determine value, but not everything can be so easily valued.  Think about shares in a small business, or land, or some sort of collectable asset.

Paying taxes annually on an asset means that all increases are being paid based on the value of the asset at the time of the increase and made using funds at full inflation.  You get to pay your taxes using uninflated or partially inflated currency, but at the time of sale of the asset you only realize fully inflated currency.  As an example, if I bought an asset in 2019 for $100,000, if its actual value didn't change it would now be worth $122,231 based on inflation alone.  If I sold that asset in 2023 I'd realize a total of $22,231 in inflated "gains" on which I'd have to pay taxes using that inflated money.  Still a net loss, but it is what it is.

This scheme instead requires me to pay taxes on $3,481 of unrealized gains in 2020, then another $7,281 in 2021, then another $7,149 in 2022, then another $4,320 in 2023. 

bUt iT iS ThE sAmE! 

No.  Adjusting for inflation, 2020's effective payment is based on $4,150 in today's money.  2021's payment is based on $8,564.  2022's payment is on $11,632.  Plus $4,320 in 2023.  So the eventual taxed value in inflation adjusted terms would end up being $28,668 - 129% of the actual increase in value at the sale.  That's just looking an investment you held for the last four years.  If someone holds an investment for a few of the wrong decades it could easily be much more drastic than that.

[Ben]

This already happens regularly when inheritance taxes kick in, I guess some people think it should be an annual thing.

I'm convinced that the same group in favor of the death tax is pushing for this crap. Inheritance taxes can largely be circumvented with trusts (as long as they don't make that illegal). If something like this were to pass, I'm thinking some smart accountants will be coming up with circumvention schemes.