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> The analysis by economists from the Office of Management and Budget and the White House Council of Economic Advisers drew from publicly available data and say

by bko 5y ago

> The analysis by economists from the Office of Management and Budget and the White House Council of Economic Advisers drew from publicly available data and says the disparity is driven largely by how the tax code treats income generated from wealth — such as income from stocks, whose worth increases over time — rather than wages, which are immediately taxed. I don't get how taxing "income from stocks" would work. Suppose you buy a stock at $100 and it go up to $200. Do you pay taxes on $100 because that's "income", even though its just a number. If its 30%, I would have to sell 15% of my stock, which would also trigger capital gains tax. This gets even crazier when people own private shares and there's no clear cut market value. This essentially would amount to you having give up your company. If you grow your company by 20% a year, at a 30% tax rate, you'd essentially give up 5% of your ownership every year just to pay taxes (someone please correct me if my math is wrong). I think it makes sense to tax actualized gains at the point of sale. There's tricks you can get around selling by borrowing at very low rates with your stock as collateral but that's a separate issue. At best we shouldn't be giving preferential tax treatment for debt financing

nickff 5y ago
>"I don't get how taxing "income from stocks" would work. Suppose you buy a stock at $100 and it go up to $200. Do you pay taxes on $100 because that's "income", even though its just a number. If its 30%, I would have to sell 15% of my stock, which would also trigger capital gains tax." Some places use this system, I believe there is talk of implementing it in New York State. The biggest problem occurs in situations like the dot-com bust, where an asset appreciates, and taxes are owed on those 'gains', so the individual takes out a loan to pay the taxes, and in the meantime, the asset drops in value. Individuals in this case may be forced to declare bankruptcy because of the taxes on an asset which rapidly fluctuated in value.
PaulDavisThe1st 5y ago
> Suppose you buy a stock at $100 and it go up to $200. Do you pay taxes on $100 because that's "income", even though its just a number. If its 30%, I would have to sell 15% of my stock, which would also trigger capital gains tax. Suppose you buy a house (or land) for $100,000 and it increases in value to $200,000. Do you pay taxes on [the] $100,000 [gain] because that's "income", even though it's just a number? Why yes, yes you do. Feel free to argue that buying real estate is a different kind of capital holding than buying stocks. There are some plausible cases to be made for it. But let's not pretend that there's no precedent for taxing unrealized capital gains.
- mercutio2 5y ago
  Not in California, you don't pay taxes on (most of) your unrealized gains! But it's a good point, wealth taxes are very doable for things that you can't easily hide from the government. Georgists of the world, unite!
- bko 5y ago
  Depends on the state. For instance, NY is below. Those taxes are a percentage based on the value of your home. It's real estate taxes. No one considers this "income" and is not taxed as such. If you want a wealth tax, you can do something like this. But let's not play games and say I "made" 100k because my house appreciated 100k and I'm somehow skirting taxes by not paying taxes on that 100k. It's incredibly dishonest to say people with unrealized capital gains "made income" and they're getting preferential tax treatment on that "income" > Reassessment and its effect in property taxes > Conducting a reassessment does not mean that your assessment or your taxes will automatically increase. Your taxes may increase, decrease or stay the same. > Over time, market value of properties change. The value of some properties may increase, while the value of some properties may decrease. Frequent reassessments ensure that your property is assessed based on current market values, rather than on market values from 20 years, like the example. > If your assessment increase, it doesn't mean that your taxes will automatically increase. If the increase in your assessment is less than the average increase, your taxes will actually decrease. For example: > If, your assessment increased by 12% and the average assessment increase was 15%, then your taxes will decrease (assuming your school and municipal budgets remain stable and the tax levies do not increase) https://www.tax.ny.gov/pit/property/learn/reassess.htm https://www.tax.ny.gov/pit/property/learn/reassess.htm
  - PaulDavisThe1st 5y ago
    > Your taxes may increase, decrease or stay the same. That's because your actual taxes depend on the "millage rate" (i.e. dollars of tax per dollars of value) which can be adjusted at every budget cycle. That's equivalent to lowering (or raising) the capital gains tax - just because you realized $100k in CG every year, "your taxes may increase, decrease or stay the same".
- 5y ago
duped 5y ago
Wealth taxes are more like property tax rather than an income tax. If you own 10,000,000 in stock today you could be assessed a tax of 50,000 on it today. Next year it's worth 20,000,000 and you would owe the same rate, 100,000. If it went down to 5,000,000 you'd still owe 25,000 in taxes. The goal is not to tax income if it exists but to excise a tax on wealth itself. Like a property tax.
- DamnYuppie 5y ago
  But what happens when the stock goes down the following year? You really haven't realized a gain until you sell it.
  - duped 5y ago
    The wealth is taxed, not the gains. Even when the value of the wealth goes down the following year. It has nothing to do with gains, realized or otherwise. Think of it like property taxes on a home. If the market crashes you still owe taxes. They may be less if the value is reassessed, but you don't get to skip the bill.
    - BirdPlusPlus 5y ago
      That idea isn't possible. First problem is stocks aren't easily liquidable at scale. Lets' think on the scale of the individual first: say this hypothetical person has 50 grand in stock options from their company. It's not a ridiculous number, perhaps they've been sitting on it for 5 years or so, building a nest egg. Say they've got liquidate stock to pay a 5% on that wealth amounting to $2500. In systems this complex you've got to play out the cascading effects, your first, second, and third order effects. It's the most complex game in the world, balance patches are tricky. First Order problem: Liquidating $2500 in stock costs more than $2500 in stock, the share price will drop once supply floods the market. This sucks for this hypothetical worker... but this is a far larger problem than just them. It's not just Mr. Hypothetical, everyone has to pay taxes on their stock. Second Order problem: A significant percentage will not have the liquid cash to pay these taxes and will have to liquidate their stock. We'll have a stock market crash every April, I guarantee it. Everyone's liquidation will further devalue others' stock. Third Order problem: the wealthiest and most solvent will plan for this - it's what they do. They'll treat this like a circa 2011 Steam Summer sale and buy everything... and I mean Everything. This hypothetical tax law designed to spite them is the greatest favor possible. I know what we'll call it: "The Running of the Bears".
KorematsuFredt 5y ago
> I don't get how taxing "income from stocks" would work. It eventually boils down to what is the principle underlying that taxation. If the principle is "I need your money and I am going to take it any ways because I am the government" then any logic goes and I feel that is where the current atmosphere is. The question we should be asking is why should we pay anything to the government. Us government by some estimates spends $24B every single day. This is just spending what took many folks years and lifetimes to earn. What value will the citizens get for every additional dollar that government gets ? My bet is we will get increased regulation, mafia styled politicians and overall misery. On other hand every extra dollar you leave in the hands of likes of Bezos or Musk will go into fueling more innovation, industry and job. I think it is a terrible idea to tax the very fuel that increases the size of your economy.
GeekyBear 5y ago
> I think it makes sense to tax actualized gains at the point of sale. There are a lot of loopholes that should be closed. Let's say your parents buy an asset and you inherit it when they pass away. Logic says that if you eventually sell that asset, the appreciation is the difference between what your parents paid for the asset and what you made from the sale. However, a tax loophole resets the value of the asset to what it was theoretically worth when your parents died, which renders nontaxable the capital gains that occurred during their lifetime. https://fullstackeconomics.com/how-a-key-biden-tax-idea/ https://fullstackeconomics.com/how-a-key-biden-tax-idea/
webmaven 5y ago
>I think it makes sense to tax actualized gains at the point of sale. There's tricks you can get around selling by borrowing at very low rates with your stock as collateral but that's a separate issue. What would you suggest for stocks that have unrealized gains that are put into a trust for a grandchild (or great-grandchild), circumventing inheritance taxes to some extent, and that are, perhaps, never sold except to rebalance the portfolio? There are any number of (largely legal) 'tricks' for avoiding taxes and maximizing intergenerational wealth accumulation. Leaving unrealized gains untaxed just makes the whole mess worse.
dragonwriter 5y ago
> Do you pay taxes on $100 because that's "income", even though its just a number. All income is “just a number”, and taxes are assessed on value of non-cash, non-investment income, so the fact thar unrealized gains aren't cash isn't a fundamental limit. > If its 30%, I would have to sell 15% of my stock, which would also trigger capital gains tax. If you are taxing capital gains as normal income even when unrealized, that would presumably replace existing taxes on (only realized) capital gains at (for long-term gains) a more favorable rate. Taxing unrealized gains/losses annually would negate the principal fairness rationale for favorable treatment of long-term gains in a progressive tax system (that it avoids overtaxing gains realized in one year but earned over several.) Of course, you can acheive a very similar effect more simply by taxing realized gains as normal income and making reasonable allowance for advance and deferred recognition of income, which neatly avoids trying to define the time and mechanism of valuing unrealized gains/losses (time being an issue for any asset, and mechanism being an issue for anything that doesn't have a clear market value.)

by bko 5y ago

nickff 5y ago

>"I don't get how taxing "income from stocks" would work. Suppose you buy a stock at $100 and it go up to $200. Do you pay taxes on $100 because that's "income", even though its just a number. If its 30%, I would have to sell 15% of my stock, which would also trigger capital gains tax." Some places use this system, I believe there is talk of implementing it in New York State. The biggest problem occurs in situations like the dot-com bust, where an asset appreciates, and taxes are owed on those 'gains', so the individual takes out a loan to pay the taxes, and in the meantime, the asset drops in value. Individuals in this case may be forced to declare bankruptcy because of the taxes on an asset which rapidly fluctuated in value.

PaulDavisThe1st 5y ago

> Suppose you buy a stock at $100 and it go up to $200. Do you pay taxes on $100 because that's "income", even though its just a number. If its 30%, I would have to sell 15% of my stock, which would also trigger capital gains tax. Suppose you buy a house (or land) for $100,000 and it increases in value to $200,000. Do you pay taxes on [the] $100,000 [gain] because that's "income", even though it's just a number? Why yes, yes you do. Feel free to argue that buying real estate is a different kind of capital holding than buying stocks. There are some plausible cases to be made for it. But let's not pretend that there's no precedent for taxing unrealized capital gains.

mercutio2 5y ago
Not in California, you don't pay taxes on (most of) your unrealized gains! But it's a good point, wealth taxes are very doable for things that you can't easily hide from the government. Georgists of the world, unite!
bko 5y ago
Depends on the state. For instance, NY is below. Those taxes are a percentage based on the value of your home. It's real estate taxes. No one considers this "income" and is not taxed as such. If you want a wealth tax, you can do something like this. But let's not play games and say I "made" 100k because my house appreciated 100k and I'm somehow skirting taxes by not paying taxes on that 100k. It's incredibly dishonest to say people with unrealized capital gains "made income" and they're getting preferential tax treatment on that "income" > Reassessment and its effect in property taxes > Conducting a reassessment does not mean that your assessment or your taxes will automatically increase. Your taxes may increase, decrease or stay the same. > Over time, market value of properties change. The value of some properties may increase, while the value of some properties may decrease. Frequent reassessments ensure that your property is assessed based on current market values, rather than on market values from 20 years, like the example. > If your assessment increase, it doesn't mean that your taxes will automatically increase. If the increase in your assessment is less than the average increase, your taxes will actually decrease. For example: > If, your assessment increased by 12% and the average assessment increase was 15%, then your taxes will decrease (assuming your school and municipal budgets remain stable and the tax levies do not increase) https://www.tax.ny.gov/pit/property/learn/reassess.htm https://www.tax.ny.gov/pit/property/learn/reassess.htm
- PaulDavisThe1st 5y ago
  > Your taxes may increase, decrease or stay the same. That's because your actual taxes depend on the "millage rate" (i.e. dollars of tax per dollars of value) which can be adjusted at every budget cycle. That's equivalent to lowering (or raising) the capital gains tax - just because you realized $100k in CG every year, "your taxes may increase, decrease or stay the same".
5y ago

duped 5y ago

Wealth taxes are more like property tax rather than an income tax. If you own 10,000,000 in stock today you could be assessed a tax of 50,000 on it today. Next year it's worth 20,000,000 and you would owe the same rate, 100,000. If it went down to 5,000,000 you'd still owe 25,000 in taxes. The goal is not to tax income if it exists but to excise a tax on wealth itself. Like a property tax.

DamnYuppie 5y ago
But what happens when the stock goes down the following year? You really haven't realized a gain until you sell it.
- duped 5y ago
  The wealth is taxed, not the gains. Even when the value of the wealth goes down the following year. It has nothing to do with gains, realized or otherwise. Think of it like property taxes on a home. If the market crashes you still owe taxes. They may be less if the value is reassessed, but you don't get to skip the bill.
  - BirdPlusPlus 5y ago
    That idea isn't possible. First problem is stocks aren't easily liquidable at scale. Lets' think on the scale of the individual first: say this hypothetical person has 50 grand in stock options from their company. It's not a ridiculous number, perhaps they've been sitting on it for 5 years or so, building a nest egg. Say they've got liquidate stock to pay a 5% on that wealth amounting to $2500. In systems this complex you've got to play out the cascading effects, your first, second, and third order effects. It's the most complex game in the world, balance patches are tricky. First Order problem: Liquidating $2500 in stock costs more than $2500 in stock, the share price will drop once supply floods the market. This sucks for this hypothetical worker... but this is a far larger problem than just them. It's not just Mr. Hypothetical, everyone has to pay taxes on their stock. Second Order problem: A significant percentage will not have the liquid cash to pay these taxes and will have to liquidate their stock. We'll have a stock market crash every April, I guarantee it. Everyone's liquidation will further devalue others' stock. Third Order problem: the wealthiest and most solvent will plan for this - it's what they do. They'll treat this like a circa 2011 Steam Summer sale and buy everything... and I mean Everything. This hypothetical tax law designed to spite them is the greatest favor possible. I know what we'll call it: "The Running of the Bears".

KorematsuFredt 5y ago

> I don't get how taxing "income from stocks" would work. It eventually boils down to what is the principle underlying that taxation. If the principle is "I need your money and I am going to take it any ways because I am the government" then any logic goes and I feel that is where the current atmosphere is. The question we should be asking is why should we pay anything to the government. Us government by some estimates spends $24B every single day. This is just spending what took many folks years and lifetimes to earn. What value will the citizens get for every additional dollar that government gets ? My bet is we will get increased regulation, mafia styled politicians and overall misery. On other hand every extra dollar you leave in the hands of likes of Bezos or Musk will go into fueling more innovation, industry and job. I think it is a terrible idea to tax the very fuel that increases the size of your economy.

GeekyBear 5y ago

> I think it makes sense to tax actualized gains at the point of sale. There are a lot of loopholes that should be closed. Let's say your parents buy an asset and you inherit it when they pass away. Logic says that if you eventually sell that asset, the appreciation is the difference between what your parents paid for the asset and what you made from the sale. However, a tax loophole resets the value of the asset to what it was theoretically worth when your parents died, which renders nontaxable the capital gains that occurred during their lifetime. https://fullstackeconomics.com/how-a-key-biden-tax-idea/ https://fullstackeconomics.com/how-a-key-biden-tax-idea/

webmaven 5y ago

>I think it makes sense to tax actualized gains at the point of sale. There's tricks you can get around selling by borrowing at very low rates with your stock as collateral but that's a separate issue. What would you suggest for stocks that have unrealized gains that are put into a trust for a grandchild (or great-grandchild), circumventing inheritance taxes to some extent, and that are, perhaps, never sold except to rebalance the portfolio? There are any number of (largely legal) 'tricks' for avoiding taxes and maximizing intergenerational wealth accumulation. Leaving unrealized gains untaxed just makes the whole mess worse.

dragonwriter 5y ago

> Do you pay taxes on $100 because that's "income", even though its just a number. All income is “just a number”, and taxes are assessed on value of non-cash, non-investment income, so the fact thar unrealized gains aren't cash isn't a fundamental limit. > If its 30%, I would have to sell 15% of my stock, which would also trigger capital gains tax. If you are taxing capital gains as normal income even when unrealized, that would presumably replace existing taxes on (only realized) capital gains at (for long-term gains) a more favorable rate. Taxing unrealized gains/losses annually would negate the principal fairness rationale for favorable treatment of long-term gains in a progressive tax system (that it avoids overtaxing gains realized in one year but earned over several.) Of course, you can acheive a very similar effect more simply by taxing realized gains as normal income and making reasonable allowance for advance and deferred recognition of income, which neatly avoids trying to define the time and mechanism of valuing unrealized gains/losses (time being an issue for any asset, and mechanism being an issue for anything that doesn't have a clear market value.)