4 ms·

The problems faced at a certain level of wealth are so alien that it's not uncommon for their solutions to sound totally nonsensical - even actively harmful - t

The problems faced at a certain level of wealth are so alien that it's not uncommon for their solutions to sound totally nonsensical - even actively harmful - to anybody outside of that demographic. In light of this, I don't think we can so easily dismiss delayed taxation of capital gains as unimportant and irrelevant. Maybe it is, but I think we need more information to solidly come to that conclusion. Even one of the things you (rightly, I think) identify as a problem seems to have some serious synergy with such a delay. What happens if one of these charitable foundations ends up with stock? How long of a delay might that taxation have then? And is there any way for them to get some liquidity out of that stock without actually selling it? Can they take out loans with it as collateral, for example? I'm not actively making claims here, but rather trying to show the situation is complex enough that we can't write off seemingly innocuous mechanics simply because they appear innocuous. It's complex, and weird, and needs deeper information and data to really understand.

cableshaft 5y ago
He said delay, but that's just because the stock hasn't sold yet. Until you do, the gains are unrealized, i.e. the stock could drop precipitously suddenly due to some black swan event (i.e. a pandemic), and then they suddenly that wealth may as well never have existed. Like let's say I'm some regular guy, but I put my only $1000 in some asset that appreciated 100x, and it's now "worth" $100,000. These people that want to tax unrealized gains swoop in and go "hey, you're 'worth' $100k on Dec 31, you should pay us $30k in taxes this year". And so I don't have that money and have to sell my stock to pay it, but two days before I do the stock market tanks before I get a chance to sell and it's dropped 70% in price, so now I'm 'worth' 30k. And now I've sold it all just to pay the unrealized gains tax. Now this is an extreme example and unlikely to happen exactly in the stock world, although not terribly extreme if this weren't stocks we're talking about, but some cryptocurrency. This is why taxing unrealized gains never made much sense to me. The gains aren't actually real until you've converted them into something else or you purchase goods or services with. Until then it's just some number on a scoreboard.
- elliekelly 5y ago
  You can borrow against the gains though so they aren’t exactly unrealized gains either.
  - cableshaft 5y ago
    Yeah, borrow as in you have to pay it all back plus an extra percentage. It might be a lower percentage than capital gains, but you better hope the asset keeps appreciating at more than you borrowed + percentage. And then once you pay it back you still have to eventually cash out and pay capital gains tax anyway. Like if I had done that with bitcoin a couple of months ago (and it's possible to do, there's DeFi now), I would have been in some deep shit with the 50% drop recently. It does seem like a bit of a sidestep though, and I'm sure rich people are probably taking advantage of it, so I wouldn't be opposed to some sort of small tax on money gained from loans made against your assets assuming you owned enough of them (like I don't want to hurt small business loans or anyone in the middle class from it), to discourage this practice a bit.
- auspex 5y ago
  This is also why I think it’s crazy we pay taxes on startup options when exercised. There’s not market to liquidate to pay those taxes and the end value is very likely $0

cableshaft 5y ago

He said delay, but that's just because the stock hasn't sold yet. Until you do, the gains are unrealized, i.e. the stock could drop precipitously suddenly due to some black swan event (i.e. a pandemic), and then they suddenly that wealth may as well never have existed. Like let's say I'm some regular guy, but I put my only $1000 in some asset that appreciated 100x, and it's now "worth" $100,000. These people that want to tax unrealized gains swoop in and go "hey, you're 'worth' $100k on Dec 31, you should pay us $30k in taxes this year". And so I don't have that money and have to sell my stock to pay it, but two days before I do the stock market tanks before I get a chance to sell and it's dropped 70% in price, so now I'm 'worth' 30k. And now I've sold it all just to pay the unrealized gains tax. Now this is an extreme example and unlikely to happen exactly in the stock world, although not terribly extreme if this weren't stocks we're talking about, but some cryptocurrency. This is why taxing unrealized gains never made much sense to me. The gains aren't actually real until you've converted them into something else or you purchase goods or services with. Until then it's just some number on a scoreboard.

elliekelly 5y ago
You can borrow against the gains though so they aren’t exactly unrealized gains either.
- cableshaft 5y ago
  Yeah, borrow as in you have to pay it all back plus an extra percentage. It might be a lower percentage than capital gains, but you better hope the asset keeps appreciating at more than you borrowed + percentage. And then once you pay it back you still have to eventually cash out and pay capital gains tax anyway. Like if I had done that with bitcoin a couple of months ago (and it's possible to do, there's DeFi now), I would have been in some deep shit with the 50% drop recently. It does seem like a bit of a sidestep though, and I'm sure rich people are probably taking advantage of it, so I wouldn't be opposed to some sort of small tax on money gained from loans made against your assets assuming you owned enough of them (like I don't want to hurt small business loans or anyone in the middle class from it), to discourage this practice a bit.
auspex 5y ago
This is also why I think it’s crazy we pay taxes on startup options when exercised. There’s not market to liquidate to pay those taxes and the end value is very likely $0