I feel an exchange tax that included loans would probably be a much better approach. Taxing seated/parked assets, especially on the very wealthy seems like a recipe for disaster. So you have to sell, or leverage the property to pay taxes. What would trying to sell billions in stock at once, or leverage hundreds of thousands of rental properties look like to the larger economy, and what would the effect be? Also, who is going to be able to even buy the stuff, if everyone with enough money/credit is scrambling to make huge tax layouts. Will you be able to deduct the interest on loans taken out to pay these taxes?
It's not like the money is just sitting, liquid in a vault like Scrooge McDuck.
> Taxing seated/parked assets, especially on the very wealthy seems like a recipe for disaster.
Idea: tax loans taken out using assets as collateral at regular income tax rates. After all, that money gets used like regular income (living expenses).
The taxed amount can then be added to the basis when the asset is sold. It would be like reverse of depreciation calculations.
Set an asset and loan value floor so it only affects people with assets $10M+.
After all, regular people pay taxes on annuities, which are similar in structure.
Disclaimer: IANA-Accountant, but I am a taxpayer who tries to legally minimize my taxes.
Yes, but we have to be careful about double-taxing mortgages for ordinary home-buyers. Those home purchases are already taxed by local municipalities—and in many places that hits the SALT cap.
> Yes, but we have to be careful about double-taxing mortgages for ordinary home-buyers.
In the context of home ownership, a loan using an asset as collateral translates to a home-equity loan or reverse mortgage. If you want to protect ordinary home-buyers, set an asset value floor of say $20M.
However, I think most share "pledging" [1] by the uber-wealthy is done using company stock as collateral, so you could restrict the tax further by having it apply only to loans taken against stock holdings over some similarly high value floor.
> Idea: tax loans taken out using assets as collateral at regular income tax rates.
I don’t think it’s as simple as this. This will end up catching normal people (any mortgage, automotive loan, etc) but may result in tricky accounting/loan structuring to avoid having literal collateral for the billionaires you’re trying to hit.
I don’t think that taxing unrealized gains is the solution either, but I also don’t think doing nothing is the solution. This is a very tricky problem without an obvious solution (and it doesn’t help that the ultra-wealthy can fairly easily influence lawmakers).
> This will end up catching normal people (any mortgage, automotive loan, etc)
So just have it kick in above $5M/year or something like that, and have it only apply to securities as assets. Not a lot of ordinary people are taking $5M+/year in loans against their stocks.
I love your consideration for the financial problems of some of the most privileged people in all of human history. I just don’t really care that much if they get a big tax bill (I’m sure they’ll find a way to pay) and for a variety of reasons it will be good for society.
A large part of the United States' economic leadership is specifically concentrated in the tech startup sector.
Whether or not you think any of the companies funded by YCombinator[0] are actually worth their valuation, you have to realize that there will be fewer such startups if a tax on unrealized capital gains is passed, and that VC activity, along with the future startups chasing their money, absolutely will move to countries without such a tax.
Again, maybe you actually believe the startup scene in the US is worthless, in which case, go ahead and advocate for an unrealized gains tax Just be honest with yourself that it will entirely shut down sectors that others view as critical to the country's future dominance.
> you have to realize that there will be fewer such startups if a tax on unrealized capital gains is passed, and that VC activity, along with the future startups chasing their money, absolutely will move to countries without such a tax.
That's a bold claim. The tax-averse amongst us say that, but in my experience investment flows to the best ideas / best distribution / best businesses. If those people are in the US because they're citizens, the capital will flow to the US, and investors will take the hit.
I think it’s simpler than that. People here tend to enjoy, and have careers around, understanding complex systems. “Consideration” for rich people isn’t required for thinking about the possible impacts of this, especially when the government has a near perfect track record in eventually shifting policies down to the working class.
The impacts could be extremely positive, some people are starting to believe the very richest having an optional tax system in the US is bad for everyone.
There seems to be a simpler fix though, that avoids the major negative effects of the larger changes.
They take out loans and aren't taxed on it. But they have to pay taxes when they pay off the loans, and at that time they'll owe even more money meaning more stocks will have to be sold.
But wait, how are they avoiding that tax even then? Well they take out another loan. But eventually that stops. They can't take out infinite loans, so what is happening? When they die, there is some tax trickery that involves resetting the cost basis of assets, then selling them with 0 capital gains to pay off the loans. The simple fix is to only reset the values after the estate pays out, meaning that any assets sold to pay off any loans will have to pay the real tax on their value, and only afterwards is the cost basis reset when inheritors receive those assets.
That seems a much more minimally invasive change, and also seems much more in line with the intent of the existing tax code to begin with, as the cost basis should only reset for those inheriting and not for paying off existing debts.
I feel you're missing the forest for the trees... You're advocating a policy of the ultra rich not having to pay tax during their lifetime because it's less complicated.
I understand you're viewing it as a tax increase as the estate pays less tax on death under the current system, but sometimes you need to realise you're stuck in the overton window.
It's not just their financial problem... I'm concerned with triggering an event that could make the great depression look like a tropical vacation by comparison.
Just for a second, imagine seeing the sale of roughly 5% of all stocks across the board... what would the side effect of that be? Since all of the very wealthy would be doing the same, that means that the prices will likely go down by more than 5% triggering more downstream sales.
They're not concerned about the wealthy, but the state of the economy. Bad things happen when the prices of things change dramatically. E.g., if you happen to own an asset that a billionaire now needs to fire sale, you'll lose out as well.
It’s not that simple. If hundreds of billions of dollars need to be liquidated across every asset class in every industry, the entire economy is going to tank. Not just “oh no the stock market’s down.” Asset prices would drop severely (housing being the most “regular-person” applicable), many business will fail meaning many people will lose their jobs, and mortgages will be foreclosed upon due to suddenly being incredibly underwater without jobs. Picture 2008, but worse.
“Hold your shares or buy more at a discount” is incredibly out of touch with the average person who will be affected by an economic depression.
Then it becomes a question of selling the needed asset now during the fire sale or waiting and having to sell even more as the price fails to recover over the years.
SVB would still be around today if it was possible to convince people to not panic sell
Price shocks in anything are generally bad for the economy (maybe with the exception of some commodities like oil, but even this can be bad since the producers of that commodity will be in trouble). You're too focused on the rich people, and not enough on the economy.
Price shocks are bad because they can cascade and cause businesses to fail, resulting in layoffs, etc.,. Stability is one of the most important things in the economy.
It’s standard practice when dealing with huge volumes of shares to sell over a long period of time, we’re not forcing them to sell everything 10 mins before taxes are due.
They will be incentivized to do this otherwise they will get nothing for their shares.
This is a tax on some extremely affluent people who are doing shenanigans to avoid paying capital gains tax. Seriously, communism it is not. Great companies were still built in the US when rich people had to pay capital gains and they still will be if these rich tax avoiders get a big bill they can split over 5 years.
Ignoring the many other reasons why that would be problematic, what happens when the US government suddenly owns notable (or even controlling) stakes in companies?
You would effectively have corruption. Governments would be more reluctant to take actions which could be negative when they have direct ownership vs their normal "indirect ownership" via taxation.
I'd love to see a list of pros. There are no pros. It's effectively death to competitors and actually extremely damaging to the companies themselves as well.
One solution to deciding how much an asset is worth is to let you declare any value you want for it, with the caveat that if someone is willing to pay you more than the declared value, you must sell it to them.
Now obviously things like transaction fees need to be factored in, and timing should matter - you should have the option to increase your stated value if something changes (or even to say "yes, okay, it's really worth X" and keep the item at the higher valuation).
That's very open to malicious actors though. Suppose you set a fair market value on your house or car. If I'm evil it may be worth a small loss on my part to 'out-bid' you simply to take that asset away from you by force, perhaps at a very disruptive time.
It also has all the other problems with estimating the true value of an asset.
> What would trying to sell billions in stock at once, or leverage hundreds of thousands of rental properties look like to the larger economy, and what would the effect be?
Billionaires already routinely sell billions in stock "at once" (meaning, per quarter or similar, not a $1 billion limit order on Robinhood...), so on that one, we can empirically suggest "not much of an effect on the larger economy".
It's not like the money is just sitting, liquid in a vault like Scrooge McDuck.