4 ms·

Overall this is a great criticism of the dubious assumptions in the ProPublica piece, but this part is over-the-top: > But imagine that we forced lots of peopl

by SilasX 5y ago

Overall this is a great criticism of the dubious assumptions in the ProPublica piece, but this part is over-the-top: > But imagine that we forced lots of people to sell shares every April to pay for their gains. There’d be more sellers than buyers as everyone raced to raise cash, and prices would go down, and our collective wealth with it. No one really wants this. (To the degree that anyone wants it, it would be the rich — as they have the collective borrowing power to buy back shares on the cheap while poorer folks can’t.) Such a scheme shouldn’t introduce an imbalance: with how liquid and efficient the stock market is, these exchanges would be known about well in advance and easy profits would be arbitraged away. It’s like saying that stocks of hot dog makers peak near the Fourth of July. Now, this is a valid concern for illiquid assets, but: 1) The previous paragraph makes clear the argument refers to the stock market, and 2) It’s not fair to compare the most naive, reckless way of assessing a wealth tax, which forces such sales of hard to value assets.

jeremy_arnold 5y ago
OP here. A few readers mentioned versions of this. Am correcting. (IRS would likely try to stagger in some way. But there's basically no good system for doing this, and you're going to cause roughly the same selling pressure no matter how you go about it. But agree that my framing was rushed/bad here for this bullet.)
- SilasX 5y ago
  Awesome! Thanks for listening!
  - Dracophoenix 5y ago
    The stock market is not all public. Stocks can be sold privately, (i.e. private contracts, stock bartering) or trading private collaterizable assets (i.e stocks in private companies). What you see on CNBC is the average buying price what people are willing to purchase on the public market. How do you go about valuing those transactions?
- lupire 5y ago
  A forced selloff doesn't destroy wealth; it improves price discovery of the assets that were previously hidden withheld from the market and overvalued. The GME HODLing "apes" aren't creating wealth either, just transferring it
- toast0 5y ago
  So if you require mark to market (as of the last day of the tax year), and then everyone subject to that waits until April 10th to sell (and then when the sales clear, sends in their taxes), that would let people know the right day to buy is April 10th, and this new flood of buying would act against the flood of selling. Also, the IRS wants quarterly estimated taxes, so that you don't owe a lot in April. The TLDR of the rules is if you owe more than 10% in April, you did it wrong and you'll pay a penalty subject to details I'm leaving out. That would tend to move from one sell day to four sell days throughout the year. And some people like to get things done early, or have offset tax years or notice a trend that selling for Q2 estimated taxes the day after Q1 estimated taxes are due gets a better price, etc. In short, I wouldn't worry too much over this. Mark to market rules for things that aren't so easy to price would be a much bigger concern.
  - nullc 5y ago
    Mark to market isn't a panacea, even if you ignore the considerable costs it creates. In some cases people are already required to mark some assets to market, doing so ends up causing to have large losses which wipes out their income entirely in some years. ... again resulting in some years with no tax in spite of being wealthy -- it's ultimately offset with higher taxes later, but in some individual years you end up with the same issue the article is complaining about but actually created by the MTM. If that surprises you, realize that when you've marked an asset to market at a higher price-- you've also increased its cost basis to that higher price, so if it returns to the price you bought it at you now have a loss. Without the MTM at that point you'd simply have no gain, but not a loss. (and if you don't allow writing of the loss you've created an utterly ruinous cost for owning any risky-- or even merely volatile asset)
ladyattis 5y ago
I think the fact the price of the stocks going down as it's being sold implies in itself that most of the value is wholly speculative. And for that aspect of the issue in terms of taxation I think there's better targets for it like closing corporate income tax loopholes (ex. Blizzard-Activision in 2017 basically paid no taxes and was paid in effective tax credits from various govts from state and local to make videogames) which is where I think the real problem lies. I don't think anyone should assume the paper wealth of Bezos or Gates is real until they cash out. And if do they, they wind out losing much of that even without taxation.

by SilasX 5y ago

jeremy_arnold 5y ago

OP here. A few readers mentioned versions of this. Am correcting. (IRS would likely try to stagger in some way. But there's basically no good system for doing this, and you're going to cause roughly the same selling pressure no matter how you go about it. But agree that my framing was rushed/bad here for this bullet.)

SilasX 5y ago
Awesome! Thanks for listening!
- Dracophoenix 5y ago
  The stock market is not all public. Stocks can be sold privately, (i.e. private contracts, stock bartering) or trading private collaterizable assets (i.e stocks in private companies). What you see on CNBC is the average buying price what people are willing to purchase on the public market. How do you go about valuing those transactions?
lupire 5y ago
A forced selloff doesn't destroy wealth; it improves price discovery of the assets that were previously hidden withheld from the market and overvalued. The GME HODLing "apes" aren't creating wealth either, just transferring it
toast0 5y ago
So if you require mark to market (as of the last day of the tax year), and then everyone subject to that waits until April 10th to sell (and then when the sales clear, sends in their taxes), that would let people know the right day to buy is April 10th, and this new flood of buying would act against the flood of selling. Also, the IRS wants quarterly estimated taxes, so that you don't owe a lot in April. The TLDR of the rules is if you owe more than 10% in April, you did it wrong and you'll pay a penalty subject to details I'm leaving out. That would tend to move from one sell day to four sell days throughout the year. And some people like to get things done early, or have offset tax years or notice a trend that selling for Q2 estimated taxes the day after Q1 estimated taxes are due gets a better price, etc. In short, I wouldn't worry too much over this. Mark to market rules for things that aren't so easy to price would be a much bigger concern.
- nullc 5y ago
  Mark to market isn't a panacea, even if you ignore the considerable costs it creates. In some cases people are already required to mark some assets to market, doing so ends up causing to have large losses which wipes out their income entirely in some years. ... again resulting in some years with no tax in spite of being wealthy -- it's ultimately offset with higher taxes later, but in some individual years you end up with the same issue the article is complaining about but actually created by the MTM. If that surprises you, realize that when you've marked an asset to market at a higher price-- you've also increased its cost basis to that higher price, so if it returns to the price you bought it at you now have a loss. Without the MTM at that point you'd simply have no gain, but not a loss. (and if you don't allow writing of the loss you've created an utterly ruinous cost for owning any risky-- or even merely volatile asset)

ladyattis 5y ago

I think the fact the price of the stocks going down as it's being sold implies in itself that most of the value is wholly speculative. And for that aspect of the issue in terms of taxation I think there's better targets for it like closing corporate income tax loopholes (ex. Blizzard-Activision in 2017 basically paid no taxes and was paid in effective tax credits from various govts from state and local to make videogames) which is where I think the real problem lies. I don't think anyone should assume the paper wealth of Bezos or Gates is real until they cash out. And if do they, they wind out losing much of that even without taxation.