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We do tax capital gains. You pay taxes when you sell. Do you mean tax unrealized capital gains? There is a reason you don’t owe taxes on a stock you haven’t s
by imgabe 5y ago
We do tax capital gains. You pay taxes when you sell. Do you mean tax unrealized capital gains?
There is a reason you don’t owe taxes on a stock you haven’t sold yet. For one thing, what if you have to pay tax at one valuation, and then it goes down later.
- astuyvenberg 5y agoThe issue is when the ultra-wealthy take out loans against their investment assets (and thus, those unrealized capital gains). By doing that, ultra-wealthy _are_ realizing the value of their investments without being taxed. That's how this wealth is being accessed, and that's a large component of what drives these ultra-low tax rates for the ultra-wealthy.
- kevinsundar 5y agoThen HELOC would be taxed which many middle class people rely on. Also its a loan so it need to be paid back. Will payments on private loans be deducted from income then?
- dougmwne 5y agoSolutions to taxation do not need to be black and white simple rules. The US tax code is already purported to be 70,000 pages. It would be perfectly reasonable to write one tax code for middle class people below a certain net worth that encourages wealth creation, family wealth, credit and investment. It would be perfectly reasonable to have a separate tax code for the ultra wealthy that curtails loopholes, tax shelters, dynastic wealth and offshore accounting. For example, some countries tax net worth over a certain number of millions.
- H8crilA 5y agoThis is not on topic, but to me it's ridiculous that something like HELOC exists and is somehow widely accepted. Like dude, you'll never pay down that debt. Your house is not an ATM machine.
- sneak 5y agoWhat's ridiculous about borrowing against equity? They repay when they sell the home.
- H8crilA 5y agoThe underlying assumption that prices only go up. It's so deep in the culture you don't even see the absurdity of not building any equity except for what's generated by upwards price momentum.
- sneak 5y agoWell, population growth has been a constant throughout that culture and that nation's entire history, so all of the consequences of that are to be expected, no?
- H8crilA 5y agoHousing prices always reverts back to CPI over multiple decades, i.e they offer no real capital gain. Robert Shiller wrote a lot about this. Also I don't understand how a growing population leads to increasing prices, while there's so damn much unused land? Either there is enough new land, then people eventually spread out (and prices revert to the CPI, to the cost of construction), or there isn't enough land and homelessness increases as more and more people are completely priced out. Right now nearly every country is in the first situation. I'm sorry, but HELOC is really just dumb.
- sneak 5y ago> Either there is enough new land, then people eventually spread out (and prices revert to the CPI, to the cost of construction), or there isn't enough land and homelessness increases as more and more people are completely priced out. It's not binary. People like to live near other people in cities. Demand to live close to one's job, friends, activities, and loved ones drives up prices in dense areas even with unlimited room to expand elsewhere. Desirable locations are desirable even on an infinitely-sized map.
- arn 5y agoSeems the solution to that (if u think it’s a problem) is eliminating step up basis. The reason that works is that basis is reset at death.
- imgabe 5y agoEstate taxes make a lot more sense. Heirs don’t need to get free billions of dollars for doing nothing and I have no problems with taxing dead people.
- arn 5y agoWell, estate tax already exists.
- imgabe 5y agoSure, but it’s pretty toothless and there are many ways to avoid it.
- spikels 5y agoWhy not both? They are different things. The free step-up in basis at death makes no sense for the very wealthy. The rule originates from the difficulty in determining the basis of assets of dead people. The very wealthy have accountants that track this. Warren Buffett can pay capital-gains tax AND estate tax.
- imgabe 5y agoSure, the free step up basis does seem like a bad thing. Getting rid of that sounds like it makes sense. That is a far cry from taxing unrealized gains as income which is what a lot of people seem to want to do.
- imgabe 5y agoLoans have to be repaid at some point. That does not avoid the tax, it just delays it.
- GavinMcG 5y agoWhat if? Most jurisdictions assess property taxes annually, and many of them regularly reassess the property value on which the tax is calculated, rather than waiting until a sale to reassess. One question is whether we want to encourage pure ownership/holding of assets (the current stock ownership situation) or whether we want to encourage productive use of an asset (the current land ownership situation).
- dougmwne 5y agoAnd additionally, a significant fraction of most people's net worth is in their housing. With a typical tax rate of 1%, most non-wealthy people are effectively already paying a large wealth tax on a huge fraction of their net worth. But if you are ultra rich and have most of your wealth in capital instead, you get away with practically no wealth tax at all. The system is rigged beyond belief.
- imgabe 5y agoLand can have buildings on it. It might have resources like water, oil, minerals, timber, that can be used. It's a shared resource and we pay society for exclusive use of it. What "productive use" are you going to get out of a share of Amazon stock? The company itself will do productive things, but taxing people to hold the stock is going to make them do what productive thing, exactly?
- pontus 5y agoI agree that taxing unrealized capital gains is a fundamentally flawed approach. However, the problem with the current system is that these ultra-wealthy people just end up borrowing against their equity, avoiding selling if possible. I think it would make sense to count borrowing against equity as tax-wise equivalent to selling that same equity. With that loophole closed, together with raising the capital gains tax, I think the tax system would be much more in line with what people expect from it.
- imgabe 5y agoBut borrowing is not equivalent to selling, tax wise or any otherwise. When you get a mortgage to buy a $750k house, do you want to be taxed as though you had $750k income that year? You’re just borrowing against the value of an asset after all.
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- robryan 5y agoIt should be possible to target this. Have it kick in say over $10 million or when a loan is backed by existing rather than new assets purchased with the loan.
- knodi123 5y agoYes, but the difference is that borrowing against your unrealized investments is a way of dodging taxes. I think the tax code can handle that level of subtlety without paying attention to your flippant reductio ad absurdum.
- imgabe 5y agoSure and borrowing $750k to buy a house is a nifty way for me to get $750k without having to pay income taxes on $750k worth of income. What an amazing loophole that gives me completely free money and no taxes! What the government could do is stop loaning out money at 0% (i.e. printing free money which inflates assets, like stocks held by wealthy people). If the prime rate increased, the rate banks would charge on asset-backed loans would also increase, which would make it less attractive than just selling the asset and paying the capital gains tax.
- willcipriano 5y agoA possible solution I haven't seen yet. Eliminate stock buybacks and force firms to deliver dividends again.
- mxschumacher 5y agodepending on the valuation, buying back stock is a much better use of capital than paying a dividend, even when disregarding the tax implications.
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- bradjohnson 5y agoThis isn't really true. If you receive RSUs as part of compensation, you have to pay taxes according to the value of the stock at the time of vesting. You also have to pay tax when you sell the stock equal to the difference in price from vesting. You might get a refund or you might pay more taxes when you sell, but there is precedent to paying taxes on stock that you currently hold.
- imgabe 5y agoIsn’t that generally a problem where people get slammed with huge tax bills on stock they aren’t able to sell and may not have the cash available to pay? Why would we want to do more of that?
- bradjohnson 5y ago>Isn’t that generally a problem where people get slammed with huge tax bills on stock they aren’t able to sell and may not have the cash available to pay? No, I can't say I've ever heard of that happening. You should be able to sell to cover. This will typically happen during an open trading window and brokerages will offer an option for "sell to cover". >Why would we want to do more of that? I didn't make a value statement one way or the other. I'm just saying your claim is wrong and maybe your misunderstanding of taxation on stock is not the reason that unrealized capital gains aren't taxed.
- imgabe 5y agoOk correct me if I'm wrong, but RSUs are given to you as a part of your income, right? You don't buy them? That would make sense then to tax them as compensation. If the company gave you other non-cash items as a form of compensation, you would have to pay tax on that too. If the company rents an apartment for you, the value of the rent would be considered income. That is a lot different than buying a stock at $10, having it go up to $100, and you now have to pay taxes on the gain (which may be temporary, the day after you pay taxes it could go back to $10).
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