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Taxing unrealized gains makes no sense because that money is not earned at all until a sell is made. It's all paper. Worth something in theory but the moment ta

Taxing unrealized gains makes no sense because that money is not earned at all until a sell is made. It's all paper. Worth something in theory but the moment taxes hike on it the value will be lost as no one will invest in that due to tax burden. The most notable bug of economics is that by changing the rules you also change the incentives and in the end the desired gains are nowhere to be seen as no-one holds the assets which are taxable pre-sell.

anonymoushn 5y ago
If I am a market maker or arbitrageur and I do tens of thousands of trades a day, I owe income tax (uh, short term capital gains tax) on all of that. If I own equity in a market maker or arbitrageur that does tens of thousands of trades a day, I owe nothing until I sell some equity. Over reasonably long time scales with reasonable assumptions about the profitability of such businesses, the vast majority of the value of the company comes from its preferential tax treatment.
- quickthrower2 5y ago
  Not sure why you are downvoted but the point is correct. Maybe the trading example isn’t great. I think a better example is simply Amazon - famously not making a profit for years. What they are doing is reinvesting and avoiding tax on the “profit” but it’s hard to distinguish reinvestment from cost and so hard to tax. Interestingly in my country there is an R&D tax credit for businesses and they are happy now to say that software devs are doing R&D (so like… an investment) to claim that ha ha. The other angle is using profits to do buy backs instead of paying dividends. In both cases you give back to share holders. With buy backs you both defer and minimise tax for the investors. Edit: hello downvoter!
maxerickson 5y ago
GAAP has companies recognizing unrealized gains, it's not complete nonsense. https://smallbusiness.chron.com/gaap-accounting-rules-unrealized-capital-gains-67388.html https://smallbusiness.chron.com/gaap-accounting-rules-unreal...
quickthrower2 5y ago
“No one would invest” is too strong IMO. People will surely invest rather than hold currency. The other thing is small time investors and pensions could be spared this tax.

anonymoushn 5y ago

If I am a market maker or arbitrageur and I do tens of thousands of trades a day, I owe income tax (uh, short term capital gains tax) on all of that. If I own equity in a market maker or arbitrageur that does tens of thousands of trades a day, I owe nothing until I sell some equity. Over reasonably long time scales with reasonable assumptions about the profitability of such businesses, the vast majority of the value of the company comes from its preferential tax treatment.

quickthrower2 5y ago
Not sure why you are downvoted but the point is correct. Maybe the trading example isn’t great. I think a better example is simply Amazon - famously not making a profit for years. What they are doing is reinvesting and avoiding tax on the “profit” but it’s hard to distinguish reinvestment from cost and so hard to tax. Interestingly in my country there is an R&D tax credit for businesses and they are happy now to say that software devs are doing R&D (so like… an investment) to claim that ha ha. The other angle is using profits to do buy backs instead of paying dividends. In both cases you give back to share holders. With buy backs you both defer and minimise tax for the investors. Edit: hello downvoter!

maxerickson 5y ago

GAAP has companies recognizing unrealized gains, it's not complete nonsense. https://smallbusiness.chron.com/gaap-accounting-rules-unrealized-capital-gains-67388.html https://smallbusiness.chron.com/gaap-accounting-rules-unreal...

quickthrower2 5y ago

“No one would invest” is too strong IMO. People will surely invest rather than hold currency. The other thing is small time investors and pensions could be spared this tax.