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>Its stock price collapsed by more than 35 percent Wednesday, erasing more than $50 billion in value in a single day. For people who want to be able to tax unr

by daenz 4y ago

>Its stock price collapsed by more than 35 percent Wednesday, erasing more than $50 billion in value in a single day. For people who want to be able to tax unrealized gains like stock, what is the plan for these kinds of events? Would stockholders receive a credit from the IRS when the valuation dips?

arrosenberg 4y ago
The holders would pay less in taxes when the valuation drops, why would they get a credit? Also, the only people who would be subject to those taxes are already extraordinarily wealthy, so who cares?
- danhak 4y ago
  Because the policy will bankrupt founders. Imagine you're the founder of NFLX and you held $1 billion worth of stock at the peak last year ($690 / share) The IRS says you owe $300 million (30% of your unrealized gains) Fast forward to spring 2022. The stock has crashed to $186, your shares are worth only $270 million but you owe a $300 million tax bill. Not to mention the impossible situation this creates for corporate governance and the general functioning of a business when founders / board members are constantly forced to divest and therefore no one can know who will even control the company from quarter to quarter.
  - arrosenberg 4y ago
    The majority of the hypothetical Reed Hastings in that scenario are also borrowing against and investing off of that $1B in equity. Maybe he should have diversified better, and I don’t see why the average person should care.
- logicalmonster 4y ago
  > The holders would pay less in taxes when the valuation drops, why would they get a credit? Perhaps you're not familiar with some of the proposals to tax unrealized gains or what this means. This means there have been serious proposals from so-called serious people to tax individuals when a stock they're holding goes up, even if they don't sell that. So somebody is making a point that nobody has made a serious proposal to give a similar credit for unrealized losses. It's just the government wanting to tax and take and take. > Also, the only people who would be subject to those taxes are already extraordinarily wealthy, so who cares? You've got it backwards. The already wealthy aren't the ones bothered by paying a bit more taxes on unrealized gains too much. If Warren Buffet had to pay an extra few million because a stock he held went up, he probably wouldn't really notice. It wouldn't even be a buzzkill on his day. In the event of a tax on unrealized gains, it's the middle class dude who made a great investment on the next Apple who is screwed over from holding for a few years because he has to sell the second the price went up just a bit to pay that tax.
  - arrosenberg 4y ago
    No one is proposing those taxes on middle class people. For example, Elizabeth Warren’s proposals would only affect those with more than $50M in assets. Second, the proposal isn’t to tax on price changes, its taxing the value of the asset at a given point in time. If the value goes down, the tax collected goes down. This is also how property taxes work - it’s a percentage of the assessed value. If the assessed value drops, you pay less in taxes.
    - jen20 4y ago
      It’s just a matter of time before this hits everyone once the principle is established.
  - seoaeu 4y ago
    Your “so-called serious people” swipe doesn’t exactly convey that you are making a good faith effort to understand these proposals… Also, there no reason a middle class investor would have to sell all their stock to pay taxes. If the value of your portfolio doubled, you’d only have to sell between 7.5% and 10% of your holdings to cover the taxes (at the current capital gains tax rates).
    - AdrianB1 4y ago
      And dilute your percentage in the process. That sounds incredibly stupid for any founder.
      - seoaeu 4y ago
        Obviously startup founders would prefer to get rich without paying taxes. That doesn’t mean the rest of society should let them.
        AdrianB1 4y ago
        If all you own is shares in a company, you are not rich, you can be homeless. If you sell your shares and make money out of that, then is the moment to pay your taxes, not a nanosecond before that.
gruez 4y ago
>For people who want to be able to tax unrealized gains like stock, what is the plan for these kinds of events? tax-loss harvesting https://www.investopedia.com/terms/t/taxgainlossharvesting.asp https://www.investopedia.com/terms/t/taxgainlossharvesting.a... >Would stockholders receive a credit from the IRS when the valuation dips? If you realize the loss (ie. sell at a loss), under certain circumstances you can get a credit.
BoiledCabbage 4y ago
I don't understand why this is so often presented as such a difficult to understand concept. People pay property taxes every year on assets that change in value without selling (ie unrealized gains). Nobody seems perplexed by that. But can't seem to figure out how it works for stocks. Regardless of if you agree or disagree with doing it (which I'm not pushing for or against here), it's not a complex concept.
- deleted 4y ago
  [deleted]
- seibelj 4y ago
  My house needs protection from the police and all manner of city services. Land is one of the more tricky elements of property to handle fairly and one mechanism is property taxes given there is only so much land in prime locations. Hard for me to make sense of taxing unrealized gains. Not even France could make a wealth tax work, and they tax everything.
- daenz 4y ago
  FWIW, the idea of paying taxes on a fluctuating property valuation has never sat right with me either. So you could say that I am perplexed by that. If I'm on some kind of fixed income, suddenly I might not be able to afford the taxes on the house that I bought 20 years ago and need to sell it? It's bizarre.
  - drewrv 4y ago
    I don't know what state you're in, but many states have senior citizen exemptions, or low income exemptions.
- astrange 4y ago
  Property taxes certainly have issues; they tax building improvements, but we want those, so we shouldn’t be incentivizing people to not improve their buildings. Land value tax is the proper way to go, questions of how to value land aside. The issue with a wealth tax is it’s inflationary - most taxes are deflationary but a wealth tax forces you to sell assets to get their cash from them. It does encourage rich people to mark up their assets less, which might reduce apparent income inequality aka make poor people less jealous of them…
ummonk 4y ago
It would obviously work the same way a realized loss works currently. They’d be able to offset the loss against other gains and carry over any excess loss into future tax years.
seoaeu 4y ago
The question is asked like it is some sort of gotcha, but there are clear answers for both the general proposals floating around: (a) wealth tax. Every year each household with over $XX million in net worth pays y% of the amount above the threshold in taxes. No refund if your net worth goes down in subsequent years. (b) treat unrealized capital gains as income. Each year you pay income taxes on the increase in the value of your stock portfolio, even if you don’t sell. Any losses can be written off subsequent years’ taxes.
- seibelj 4y ago
  If I’m a rich person and I’m forced to sell shares to pay the tax bill, which then harms pension funds and sovereign wealth by incessantly driving down the value of everyone’s assets, isn’t this problematic?
  - seoaeu 4y ago
    That sounds dangerously close to trickle down economics. In any case, your example is far less problematic than the current situation where a rich person could fund their lifestyle off loans against their portfolio while never paying capital gains taxes at all
    - jen20 4y ago
      Why not tax the loans instead?
- daenz 4y ago
  Walk me through it. Year 1, I own 10,000 shares at $0.1 each. I'm taxed 25% of $1000, or $250. Year 2, my super smart investment pays off and I own 10,000 shares at $100 each. I'm taxed 25% of an "income" of $999,000, or $249,750. Only, I don't have enough cash to cover the bill, so I sell about a quarter of my stock, leaving me with 7,500 shares. Year 3, the stock goes bust down to $0.2 per share. I write off a loss of $997,500? Does this mean I basically never pay taxes again? So the end result is I paid a total tax bill of $250,000 on essentially nothing? Furthermore, what if I decided not to sell my shares when they were worth $100 each and wanted to defer the tax bill. But now the price has crashed to $0.2, and I still owe a massive bill. Is that offset by my tax write-off?

by daenz 4y ago

arrosenberg 4y ago

The holders would pay less in taxes when the valuation drops, why would they get a credit? Also, the only people who would be subject to those taxes are already extraordinarily wealthy, so who cares?

danhak 4y ago
Because the policy will bankrupt founders. Imagine you're the founder of NFLX and you held $1 billion worth of stock at the peak last year ($690 / share) The IRS says you owe $300 million (30% of your unrealized gains) Fast forward to spring 2022. The stock has crashed to $186, your shares are worth only $270 million but you owe a $300 million tax bill. Not to mention the impossible situation this creates for corporate governance and the general functioning of a business when founders / board members are constantly forced to divest and therefore no one can know who will even control the company from quarter to quarter.
- arrosenberg 4y ago
  The majority of the hypothetical Reed Hastings in that scenario are also borrowing against and investing off of that $1B in equity. Maybe he should have diversified better, and I don’t see why the average person should care.
logicalmonster 4y ago
> The holders would pay less in taxes when the valuation drops, why would they get a credit? Perhaps you're not familiar with some of the proposals to tax unrealized gains or what this means. This means there have been serious proposals from so-called serious people to tax individuals when a stock they're holding goes up, even if they don't sell that. So somebody is making a point that nobody has made a serious proposal to give a similar credit for unrealized losses. It's just the government wanting to tax and take and take. > Also, the only people who would be subject to those taxes are already extraordinarily wealthy, so who cares? You've got it backwards. The already wealthy aren't the ones bothered by paying a bit more taxes on unrealized gains too much. If Warren Buffet had to pay an extra few million because a stock he held went up, he probably wouldn't really notice. It wouldn't even be a buzzkill on his day. In the event of a tax on unrealized gains, it's the middle class dude who made a great investment on the next Apple who is screwed over from holding for a few years because he has to sell the second the price went up just a bit to pay that tax.
- arrosenberg 4y ago
  No one is proposing those taxes on middle class people. For example, Elizabeth Warren’s proposals would only affect those with more than $50M in assets. Second, the proposal isn’t to tax on price changes, its taxing the value of the asset at a given point in time. If the value goes down, the tax collected goes down. This is also how property taxes work - it’s a percentage of the assessed value. If the assessed value drops, you pay less in taxes.
  - jen20 4y ago
    It’s just a matter of time before this hits everyone once the principle is established.
- seoaeu 4y ago
  Your “so-called serious people” swipe doesn’t exactly convey that you are making a good faith effort to understand these proposals… Also, there no reason a middle class investor would have to sell all their stock to pay taxes. If the value of your portfolio doubled, you’d only have to sell between 7.5% and 10% of your holdings to cover the taxes (at the current capital gains tax rates).
  - AdrianB1 4y ago
    And dilute your percentage in the process. That sounds incredibly stupid for any founder.
    - seoaeu 4y ago
      Obviously startup founders would prefer to get rich without paying taxes. That doesn’t mean the rest of society should let them.
      - AdrianB1 4y ago
        If all you own is shares in a company, you are not rich, you can be homeless. If you sell your shares and make money out of that, then is the moment to pay your taxes, not a nanosecond before that.

gruez 4y ago

>For people who want to be able to tax unrealized gains like stock, what is the plan for these kinds of events? tax-loss harvesting https://www.investopedia.com/terms/t/taxgainlossharvesting.asp https://www.investopedia.com/terms/t/taxgainlossharvesting.a... >Would stockholders receive a credit from the IRS when the valuation dips? If you realize the loss (ie. sell at a loss), under certain circumstances you can get a credit.

BoiledCabbage 4y ago

I don't understand why this is so often presented as such a difficult to understand concept. People pay property taxes every year on assets that change in value without selling (ie unrealized gains). Nobody seems perplexed by that. But can't seem to figure out how it works for stocks. Regardless of if you agree or disagree with doing it (which I'm not pushing for or against here), it's not a complex concept.

deleted 4y ago
[deleted]
seibelj 4y ago
My house needs protection from the police and all manner of city services. Land is one of the more tricky elements of property to handle fairly and one mechanism is property taxes given there is only so much land in prime locations. Hard for me to make sense of taxing unrealized gains. Not even France could make a wealth tax work, and they tax everything.
daenz 4y ago
FWIW, the idea of paying taxes on a fluctuating property valuation has never sat right with me either. So you could say that I am perplexed by that. If I'm on some kind of fixed income, suddenly I might not be able to afford the taxes on the house that I bought 20 years ago and need to sell it? It's bizarre.
- drewrv 4y ago
  I don't know what state you're in, but many states have senior citizen exemptions, or low income exemptions.
astrange 4y ago
Property taxes certainly have issues; they tax building improvements, but we want those, so we shouldn’t be incentivizing people to not improve their buildings. Land value tax is the proper way to go, questions of how to value land aside. The issue with a wealth tax is it’s inflationary - most taxes are deflationary but a wealth tax forces you to sell assets to get their cash from them. It does encourage rich people to mark up their assets less, which might reduce apparent income inequality aka make poor people less jealous of them…

ummonk 4y ago

It would obviously work the same way a realized loss works currently. They’d be able to offset the loss against other gains and carry over any excess loss into future tax years.

seoaeu 4y ago

The question is asked like it is some sort of gotcha, but there are clear answers for both the general proposals floating around: (a) wealth tax. Every year each household with over $XX million in net worth pays y% of the amount above the threshold in taxes. No refund if your net worth goes down in subsequent years. (b) treat unrealized capital gains as income. Each year you pay income taxes on the increase in the value of your stock portfolio, even if you don’t sell. Any losses can be written off subsequent years’ taxes.

seibelj 4y ago
If I’m a rich person and I’m forced to sell shares to pay the tax bill, which then harms pension funds and sovereign wealth by incessantly driving down the value of everyone’s assets, isn’t this problematic?
- seoaeu 4y ago
  That sounds dangerously close to trickle down economics. In any case, your example is far less problematic than the current situation where a rich person could fund their lifestyle off loans against their portfolio while never paying capital gains taxes at all
  - jen20 4y ago
    Why not tax the loans instead?
daenz 4y ago
Walk me through it. Year 1, I own 10,000 shares at $0.1 each. I'm taxed 25% of $1000, or $250. Year 2, my super smart investment pays off and I own 10,000 shares at $100 each. I'm taxed 25% of an "income" of $999,000, or $249,750. Only, I don't have enough cash to cover the bill, so I sell about a quarter of my stock, leaving me with 7,500 shares. Year 3, the stock goes bust down to $0.2 per share. I write off a loss of $997,500? Does this mean I basically never pay taxes again? So the end result is I paid a total tax bill of $250,000 on essentially nothing? Furthermore, what if I decided not to sell my shares when they were worth $100 each and wanted to defer the tax bill. But now the price has crashed to $0.2, and I still owe a massive bill. Is that offset by my tax write-off?