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A wealth tax implies a tax on unrealized appreciated assets, which is beyond bizarre IMHO. So you buy a house for $500k somewhere. It surges in value to $1.2
by stevenjgarner 4y ago
A wealth tax implies a tax on unrealized appreciated assets, which is beyond bizarre IMHO. So you buy a house for $500k somewhere. It surges in value to $1.2 million. You therefore have an unrealized capital gain of $700k. You are NEVER going to get that money until you sell it, and when you do you are going to pay a whopping amount of capital gain tax. But a wealth tax implies you pay that capital gain tax now. Okay so let's say you do. Then a year later there is a major correction to the real estate market (hmmm ... 2008). Your $1.2 million property (on which you paid a huge amount of wealth tax) is now worth say $700k. Do you get a tax refund? You never got the income. You should never pay the tax. No different if it is a $500k property or a $1 trillion company. It is not wealth until you have it.
- Johnny555 4y agoOh, you mean like the property tax I pay on my unrealized house value? I don't get that tax back if I end up selling my house for half what it was taxed for last year. But I can appeal the evaluation for this year.
- lovecg 4y agoWe don’t have to be absolutist about it. Houses are not nearly as volatile as stock, so evaluating and taxing them as wealth is pretty feasible.
- stevenjgarner 4y ago> Houses are not nearly as volatile as stock I know six million American households who lost their homes to foreclosure in 2008 that might disagree with that one.
- midasuni 4y agoPrices dropped 15% from the peak to the trough. The S&P is down 20% in the last 3 months.
- Johnny555 4y agoI live in a "hot" real estate market, my house has appreciated nearly 50% in 2 years. It's entirely possible that it will depreciate 20% or more over the next year.
- deleted 4y ago[deleted]
- stevenjgarner 4y agoDepending on the jurisdiction, property taxes are usually a function of the property valuation. So at least if the property value goes down, theoretically so do your annual property taxes. The problem with a theoretical wealth tax, is that when the asset value goes down, too late you've already paid your wealth tax.
- elbigbad 4y agoYour point seems a little orthogonal. If I pay tax on X value in year 1, value goes up and now I pay X*1.1 in year 2, then back to X in year 3 because the home value lowers again, I don’t get a refund for the extra 10% paid in year 2 despite the fact that I never realized any value in the fact that my home appreciated for a year.
- stevenjgarner 4y agoSo in 2020 I inherit $16k and decide to buy 1 BTC for $16,082 on Nov 12, 2020. Later that day the wealth tax department is created and levies a 20% tax on all unrealized appreciated assets. Your reporting day is on the anniversary of the original asset purchase. So a year later (Nov 12, 21) Bitcoin is at $64,400. My accumulated unrealized appreciation is $48,318. I file my wealth tax return and have to borrow the $9,663.60 to pay my wealth tax. Bear in mind, I still own my 1 BTC. Have not sold it. Have not enjoyed these promising riches. Six months later BTC is $40k and sliding down in price. By Nov 12, 2022, at the end of the 12 month reporting cycle, let's say BTC collapses all the way to $5k. I sell my 1 BTC for the $5k, and now own nothing but I am "happy" to only still owe $4,663.60 on my wealth tax loan.
- Johnny555 4y agoSounds a lot like the AMT situation for stock options where people pay taxes on the paper value of the stock when exercised, even if they don't (or even can) sell it -- the IRS can provide a way to recover taxes paid on unrealized gain if you sell the asset at a loss from where it was taxed. But I'd recommend selling enough of your BTC to pay taxes so you're not underwater if it goes down in value.
- _uy6i 4y agoProperty taxes are a bad idea too.
- quickthrower2 4y agoNot if people living in 'reasonable' properties are not taxed much at all. If a family lives in a 100sqm house, probably should be nothing additional. If they live in 2000sqm mansion, they probably can afford a decent sized tax. Of course size is not the only factor, which makes it complicated. Land or property value is probably a good proxy. If you house is >$1M it probably means you are wealthy. Now you get one of two things in each individual case: Either people downsizing (good, frees up property for other people) or people paying tax (good for society).
- 14u2c 4y agoThe problem with this logic is that real estate values are out of control. In my city not uncommon to see stories of families who have owned a home for generation or more being forced to sell it because the value of the land went from $200k to $800k in 10 years and is now taxed as such.
- quickthrower2 4y agoThen make it price adjusted for that to some extent. Use medians. And being forced to sell to some degree is by design. One elderly lady hogging the land that could house 100 apartment dwellings in the middle of a city for example. “Owning Land” is a human construct. And it would be no worse than compulsory purchases by government for infrastructure. Or someone leasing where the landlord wants more rent so they get kicked out.
- _uy6i 4y agoLol I’ll just be taking your bike or equity/stock, don’t like it, ugh you’re so naive, “ownership is just a human construct”
- okasaki 4y ago
- bradly 4y agoThe capital gains tax may never get paid. You can 1031 exchange the property over and over again and then the gains are zeroed out when passed down generationally.
- theptip 4y ago> You are NEVER going to get that money until you sell it If you need to unlock the equity you can get a HELOC. More generally, if you own an asset with a well-known pricing model you can use it as collateral for a loan. To your second point I believe you do carry over tax losses for some time.
- idiotsecant 4y agoYes, I see your point. 'Wealth' is what rich people have, in which case taxes on it's value don't make sense! That's ludicrous! 'Property', on the other hand, is what normal people have. The value of property must be taxed, for the good of us all! Anything else would be silly.
- tbrownaw 4y agoThe argument you're resorting to attempted mockery to oppose is not the argument that the comment you're responding to made.
- TheCoelacanth 4y agoProperty taxes are even more onerous than a wealth tax. If you own a $1 million house with an $800k mortgage, you pay tax on $1 million of property, but you only have $200k of wealth. Billionaires are the world's biggest whiners. Even a tax burden that's proportional to what normal middle-class people pay is the end of the world.
- rurp 4y agoAll of the serious wealth tax proposals I've seen have a rather high floor. A more practical hypothetical would be a person with 10m other assets worrying being taxed on the gains from their 5th vacation home.
- UncleMeat 4y agoThis hasn't stopped people from complaining about things. My grandparents are constantly complaining about how the inheritance tax is going to prevent them from willing their timeshares to the family. Even if we show them the IRS website they don't believe us when we say it doesn't kick in below $12m.
- rurp 4y agoI've encountered similar cases, though nothing that drastic, and it baffles me. There are plenty of real problems to complain about with the government, why do people go around inventing fake ones?
- dragonwriter 4y ago> You are NEVER going to get that money until you sell it, and when you do you are going to pay a whopping amount of capital gain tax. Ignoring the hyperpreferential tax treatment of capital gains, I assume? (LTCG are taxed far less than generic income, which in turn is taxed less than labor income.) > You never got the income It's not an income tax, so who cares? Assets deliver utility while held; income isn't the only utility they deliver. That's literally the point of wealth taxes.
- sdh 4y agoMaybe you're not aware how these "unrealized" capital gains (at scale) are indirectly realized in the form of loans taken against value of the asset. Massive wealth doesn't operate in income or even in typical capital gains advantages you're referring to. It operates at a scale where the value of the assets are so great, banks compete to give loans to them, which are not taxed like income. It's totally absurd to argue that loans from assets isn't income. It's used to purchase more assets, to purchase tax favorable legislation, to buy media to keep us thinking this issue is about paying capital gains on your retirement portfolio. If Bezos will "never get that money unless he sells stock" was a true statement, then where do all the yachts and houses and other assets come from? How does he buy them? If the IRS suddenly recognized loans taken against asset wealth or any exchange of assets as income, the tax rates of the super wealthy compared to the average American would suddenly look sane.
- blackoil 4y agoAre these loans ever repaid or are you suggesting Bezos/Bill Gates etc have slowly accumulated loans to be paid in some long future. If so there must be some public info. about its stats
- bmitc 4y agoI would assume that, yes, these loans are often repaid via other similar loans or instruments that continue to leave unrealized gains as unrealized and avoid taxation. I doubt many multi-millionaires and billionaires publicly disclose or publish the techniques they use to siphon wealth off of society.
- randomhodler84 4y agoIt is absurd to argue a loan is income. You get to keep income, you have to return the value of a loan, eventually. The process of unwinding the loan generates tax revenue. Constant borrowing isn’t a free money machine, eventually you have to earn more to service the debt (income tax) or sell assets to pay it back (capital gains). Have you ever taken a loan?
- Rebelgecko 4y ago
- bmitc 4y ago> A wealth tax implies a tax on unrealized appreciated assets, which is beyond bizarre IMHO. No, it doesn't. For example, if I'm super rich and take out a loan using unrealized assets as collateral, then I could be taxed on the loan amount received. There are several such strategies that either force the sale of unrealized assets or tax other portions of the transactions when those unrealized assets are used as collateral. What is bizarre is that somehow people making less than $200,000 a year can be heavily taxed while if you're a multi-millionaire or billionaire, suddenly things become so drastically difficult that you couldn't possibly be taxed on anything you do with your monopoly money. The example you gave is, quite frankly, pointless in the context of discussing billionaires. Discussing real estate assets far less than $2 million is completely irrelevant to a discussion about people with net worth exceeding hundreds of millions of dollars, if not tens of billions of dollars. > It is not wealth until you have it. If that's true, then stop allowing people to turn it into wealth, which they do all the time.
- kortilla 4y agoThe loans have to be paid. No matter how many times you refi, there is a massive tax bill at the end.
- quickthrower2 4y agoIf I have a billion in assets and need $1M/y to live, I can live 100 years and still be at a 10% Loan-Value ratio (assuming no growth!). With some good estate planning there is probably no tax to pay ever.
- matt9j 4y agoThis is actually not entirely true depending on how your structure your spending. In particular in the United States (the context for Coinbase's employees), the basis used to compute capital gains resets when the items are inherited when you die. So if you have enough wealth to take out loans on it until you die without ever needing to liquidate the wealth, your estate and heirs (again through some sophisticated accounting) reset the capital gains basis, and then can pay off the loans with the appreciated assets and completely avoid capital gains. ProPublica did a very detailed investigation on this in mid-2021 (https://www.propublica.org/article/the-secret-irs-files-trove-of-never-before-seen-records-reveal-how-the-wealthiest-avoid-income-tax https://www.propublica.org/article/the-secret-irs-files-trov...)
- RC_ITR 4y agoWhat’s funny is youre describing the only wealth tax in common practice in the US - property taxes. The point of wealth taxes (see Texas real estate prices) is to disincentivize rapid asset appreciation. Texas and California are different in many ways and this is the main one (California income tax vs Texas real estate tax). California showed (shows) that income taxes only sort of disincentivize inequality, whereas Texas shows wealth taxes very much disincentivize inequality, so much so that the government has to actively lobby to get truly high paying jobs there.
- evilsetg 4y agoHow about an exemption for one house/apartment? If you use a house for personal purposes, e.g. to live there then your point stands but in case of commercial purposes the tax is something that should just enter your business calculation.
- actually_a_dog 4y agoHow about not? If you live there and take advantage of municipal services, you should be expected to pay up.
- deleted 4y ago[deleted]
- jk7tarYZAQNpTQa 4y agoMaybe billionaires should be forced to realize a fraction of those unrealized gains from time to time, and pay taxes on them.
- manholio 4y agoThe solution to these problems is not to tax the person, but the company itself: every year a certain faction of stock is nationalized and distributed to the population of the county without which the company would not be possible. It's the only realistic option to provide a UBI: in a world where human capital is quickly depreciating, provide people with financial capital so that they can still be a part of the resource distribution and consumption game.