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Unrealized Gain Tax–A Coming Sea Change in FY2025 Budget Proposal?

13 points by tldrthelaw 2y ago

Gormo 2y ago
This is a frightening idea -- being forced to pay taxes on speculative income you haven't actually earned yet will destroy small business and will inevitably be weaponized against anyone who owns any substantial assets, including residential property. If this passes, I hope the courts strike it down as unconstitutional on the grounds that unrealized gains don't qualify as "income" under the 16th amendment.
- deleted 2y ago
  [deleted]
- mox1 2y ago
  The Reddit /accounts were talking about this earlier this week and I think most of them had a pretty reasonable take. 1. If one uses an asset as collateral for a loan (be it stock or whatever else), for tax purposes treat that asset as sold, then immediately repurchased at the same price. 2. From there all of the usual tax laws can apply. So in theory this should get at the core of the actual problem, while avoiding at lot of the messiness of taxing un-realized gains. It's not perfect, but I think it helps align incentives well. Whoever is lending the money probably wants to know the value of the collateral. Lender and borrower are now both incentivized to come up with the real value at the time of the loan.
  - awongh 2y ago
    Maybe it’s just a marketing problem then and it should be called asset collateral tax rather than unrealized gain tax, which on the face of it sounds kind of stupid.
  - nightski 2y ago
    So small business can't take out loans unless they can realize and be taxed on the full valuation of their company immediately? As much as I can appreciate the goal, this is absurd.
    - kgwgk 2y ago
      Businesses =/= Businesses owners
      - nightski 2y ago
        For many small businesses, that is false. Sole proprietorships and pass through LLCs are extremely common.
        kgwgk 2y ago
        And can those businesses currently take a loan to pay for the owner holidays or whatever?
        nightski 2y ago
        I do not see in the article where it says the loan has to be used for personal expenses. In fact from what I can tell it just says unrealized gains will be taxed regardless of whether a loan is taken out or not. The loan example is just used as a justification.
        kgwgk 2y ago
        You're the one who was talking about loans! In response to "If one uses an asset as collateral for a loan" you wrote "So small business can't take out loans unless they can realize and be taxed on the full valuation of their company".
        nightski 2y ago
        I was responding to the parent who also made no distinction that the loan was solely for personal purposes.
        kgwgk 2y ago
        The comment was about using assets as collateral for loans. Your response was about something else - or maybe it was not about anything, I'm not sure. A company can also get asset-backed loans using as collateral something the company owns - or it can get a completely different kind of loan where there is no specific asset used as guarantee.
  - Spartan-S63 2y ago
    Yeah, I agree with this take. I think making an issue of unrealized gains isn't the real story here. Using unrealized gains/assets as collateral is the way the ultra-wealthy avoid large swaths of income tax. I see two reasonable paths forward for taxing using assets as collateral: 1. Treat it as a sale and repurchase (as you described) and transform capital gains into a progressive system 2. Treat the sale as earning income for purposes of using the traditional income tax brackets. Either way, you don't get into a weird speculative tax gray area. Rather it's when the ultra wealthy want cash-on-hand that they incur some kind of income tax penalty. Maybe even put in a reasonable exemption ($25-100k/year) that doesn't trigger tax so that middle class households aren't hamstrung by this.
    - cjbgkagh 2y ago
      One of the reasons I think politics is ok with income tax being where it is, is that the wealthy can currently avoid most of it. The wealthy can bring their money to bear to influence politics again to both broaden the scope so that the tax is more universally disliked and to create another carve out for themselves. Or at the very least situate themselves to benefit from government largess so that new taxes funding new spending is a net benefit for them. My main concern is that it puts the government in a position to greatly benefit from inflation, even more so than it does now, and inflation will be the hidden tax that hurts the poor.
    - opo 2y ago
      >...Using unrealized gains/assets as collateral is the way the ultra-wealthy avoid large swaths of income tax. There are many web sites that claim this, but are there any actual reliable stats on how many lifetime loans are being given out? It is common to make short terms based on using stocks, etc as collateral. But how common is it to have a lender be ok with either deferring interest for decades until the person dies or continually giving new loans out to cover the interest (on paper at least)? Doing a quick search, I have not found one stat on how many lifetime loans like this are actually being done. There is a treasury department page claiming that about 160 billion dollars in unrealized gains are not being taxed, but that isn't talking about stock being used as collateral, that is talking about simply the value of assets increasing - that is entirely different. (If unrealized nominal gains should be taxed, should decreases in the value of assets lead to a tax refund?) According to this: https://finance.yahoo.com/news/jeff-bezos-sell-5-billion-185303024.html https://finance.yahoo.com/news/jeff-bezos-sell-5-billion-185... Bezos has sold around $13.4 billion in stock in 2024. If he could easily avoid millions (maybe billions) of dollars of capital gains tax by this one simple technique, why wouldn't he have?
  - rich_sasha 2y ago
    Interesting. How does this interact with something trivial like remortgaging a house? Say I bought a house for 100k, cash. Now it's worth 200k. I want to take another 50k mortgage on it. Do I realize cap gains on 25% of my house, i.e. an increase of value on 25k to 50k, and then I'm liable for cap gains on 25k? At 20% say, that's 5k tax. Unpleasant for sure, but doesn't seem out of proportion.
    - voisin 2y ago
      I believe it is only on unrealized gains over $100m.
  - snapplebobapple 2y ago
    That will cause quite a painful but interesting deleveraging, i like it.
- QuadmasterXLII 2y ago
  My understanding of the proposal is that households worth more than $100 million would pay an annual minimum tax worth 25% of their combined income and unrealized capital gains. This doesn’t seem insane? In particular, that’s a hell of a residential property
  - CamperBob2 2y ago
    [flagged]
    - jeffbee 2y ago
      Ah yes, the classic story: first they came for the hectomillionaires, and so forth.
      - deleted 2y ago
        [deleted]
      - greentxt 2y ago
        It's a story. But it is also an empirical question many people will be able to answer for themselves from abundant historical evidence no? Maybe people don't care about the data if they've never had difficulty paying their tax bill. I'm in the other camp, as are many working class people.
        jeffbee 2y ago
        Sorry, could you restate your claim? It seemed as though you claimed that "many working people" have historically been taxed on their unrealized capital gains. After I fell off my stool laughing I wasn't sure you meant it.
        greentxt 2y ago
        My claim is that it's an empirical question whether tax policy drifts over time in such a way that more people pay more. Seems foolosh to argue over what can be easily quantified. In terms of my statement about many working people having trouble paying taxes, that too is quantifiable. As someone with many working poor friends I could offer anecdotes where people have to sell a car or do something drastic to pay their tax bill. The reason is that many working poor don't have normal middle class jobs where a portion of their salary is set aside for taxes. Everyone should pay taxes, even poor folks who don't have bank accounts or steady employment. My point is that these people hate taxes as much, likely more, than jeff bezos does. The people who seem to like taxes and tax increases (you may be one), tend to be upper middle class professionals who have never had to scramble to pay them for fear of prison or wage garnishment.
- randomdata 2y ago
  Especially when the stated concern is actual income already realized. Why not just tax the income?
  - __loam 2y ago
    Because ultra rich people like Bezos can dodge taxes by taking loans against their unrealized gains indefinitely.
    - randomdata 2y ago
      Yes that’s the stated concern. The proceeds of a loan is realized income. Why not tax it? It is understandable why it wasn’t taxed historically, but as the article says, the market is changing.
      - Gormo 2y ago
        Yeah, it makes a lot more sense to treat liquidity achieved by collateralizing capital gains on assets as realized gains, and tax it as income, then to allow for blanket taxation of unrealized gains. But I'm still not sure what problem any of this is trying to solve in the first place. Does anyone seriously think this would solve the federal budget deficit?
        randomdata 2y ago
        Taxes aren't really for budgetary matters. A government can simply print money for that. Taxes are mostly for: 1. Data collection. 2. Behaviour incentivization/disincentivization. 3. An avenue for money destruction. With inflation concerns still lingering, #3 is on minds. We also are coming to recognize that we don't actually have a great handle on how much wealth is out there, which is no doubt why this seeks to tax the wealth and not the associated income. But I suspect the greatest driver is that the general public are increasingly coming to think that the rich are not behaving in desirable ways and want to change their behaviour, with this being an appeal to that.
- cma 2y ago
  The United States had inheritance taxes before it had a federal income tax. The first federal inheritance tax in the U.S. was introduced in 1797 as a temporary measure to fund a potential war with France.
- jfoutz 2y ago
  unrealized gains in property are already taxed by "property taxes". If I buy a $1000 dollars worth of stock, and use that to secure a $1000 loan. ok, fine, I don't see why that should be taxed at all. But if the lender believes the stock is worth lots more, and offers a $2000 secured loan, something's going on there. I don't think it should be as much as actual capital gains, because it's not actually turned into cold hard cash. And there's still risk of the underlying asset price falling. But if the lender says my $1000 is worth $2000, I'm getting some benefit of the higher value. And I can see why that would be taxed. I'd really want to see the details. probably that tax should be deducted from capital gains when finally realized. I dunno. it's complicated.
  - azulster 2y ago
    may be it shouldnt be the same as capital gains, but it should be related. like maybe it should be (capital gains tax rate - interest rate of loan) else it will simply be a way to continue to pay less taxes and still have your income as cash on hand
  - danaris 2y ago
    The purpose of this isn't for someone who buys $1k of stock then uses that as collateral for a $1k loan. It's for someone who has zero traditional income, but owns stocks worth $100M+, and uses, say, $2M of that as collateral for a $2M loan so that they can have liquid assets.
    - jfoutz 2y ago
      I used small numbers to focus on the mechanism. I think the point is, if I purchased the sock for $100M+, that loan shouldn't be taxed. If I purchased that asset for $1M, and take a $2M loan, only the second M would be, in some sense, realized, and subject to the tax.
    - foobarian 2y ago
      But... how are they repaying the loan? Selling a little bit of stock now and then, which is then taxed?
- voisin 2y ago
  > destroy small business On the All-in Podcast they said it was only on unrealized gains over $100m. This is meant to target the Bezos and Musks of the world who can avoid taxes by borrowing against unrealized gains.
billconan 2y ago
I’ve been trying to understand how the budget proposal process works, including how it is voted on and approved, but I couldn’t find much information. For example, with FY2025 starting on October 1, 2024, does this mean any proposed tax rate hikes would take effect on that date, or would they start on January 1, 2025? Additionally, since Trump’s tax cuts are set to expire on December 31, 2025, does this guarantee that tax rates will remain unchanged until that date?
- jeffbee 2y ago
  Congress can change the rates at any time, and they can set the effective date to any date. Whether they would do that or not is an open question.
  - billconan 2y ago
    Is there a way to track Congress’s activities related to potential tax rate changes? I’d like to stay informed and avoid being caught off guard by any sudden changes. I’ve looked into this, but it’s more complicated than I expected. For example, Congress votes on 12 separate appropriations bills related to the budget, and I’m not sure which ones impact tax rates or when those votes are scheduled?
jcpham2 2y ago
If you want capital flight this is how it starts. If this went into effect I would owe taxes on several hundred thousand dollars in gains that I can't afford, or I couldn't afford unless I sold stuff, causing more taxable gains. Seychelles shell corp looking pretty good right now.
- kcb 2y ago
  Don't forget once this mass sell off happens it's likely to tank the entire economy. But at least for a brief period the federal government will have to borrow $1 trillion instead of $1.5 trillion to cover the deficit.
- __loam 2y ago
  I'm under the impression that this policy would only apply to individuals with over $100m in assets. I'm sure there's reasonable provisions that could be applied to this with respect to liquidity. These proposals are obviously targeted at individuals like Jeff Bezos who do things like take out loans against their unrealized gains so they don't have to pay taxes on their wealth.
  - greentxt 2y ago
    Policy targetted at one person, or a small heterogenous group of people, is not good policy.
    - __loam 2y ago
      Okay so are you just against progressive tax policy then? I don't really find myself having a lot of sympathy for people with over $100m in wealth, who seem to not be paying much in taxes relative to that wealth.
      - greentxt 2y ago
        Nor do I! I am as envious of them as anyone else. I don't own a home and likely never will, and it's because of rich people (and black rock) moving in a buying up homes for speculative/investment reasons mostly. Envy and housing market competition aside, morally it's a "camel through the eye of a needle" thing. Rich people should give more wealth away, for moral reasons. But I also think policy shouldn't be based on (these) sentiments alone. Policy should be judged by it's net impact. This seems like absudly myopic policy, coming from the same bright minds who gave us a 2 trillion dollar stimulus package they named "inflation reduction act" that was a net negative for working people, but a boon bureaucrats and other industry special interests.
jawns 2y ago
> If, however, we consider the fact that the aforementioned billionaire could borrow money using the appreciated stock as collateral — perhaps, say, to purchase a social media company — we might feel somewhat differently. After all, absent some mechanism by which the billionaire can be taxed, they can at least in theory defer ever realizing their gains by continually borrowing against their stock rather than selling any of it. This line is a great way to both throw shade and to make it clear that there are real-world examples of people currently exploiting this strategy. I wonder if it would be possible to just say, "If you have unrealized gains and aren't borrowing against them, then no taxes are necessary, but if you attempt to borrow against them, then they are treated as 'realized' even if they're not sold." That protects the interests of people who don't have the option to realize their assets (e.g. no liquidity event available) while still closing the loophole that allows billionaires to borrow against those assets tax-free.
Xcelerate 2y ago
How do ideas like this actually get taken seriously? Is this just for votes? I’m all for the end goal here but mandating it by fiat seems to ignore various unpredictable second order effects that could crash the economy and drive innovation out of the U.S. Too many unknown unknowns. I would be much more in favor of implementing universal basic income instead of taxing unrealized capital gains. If the stock market + inflation + pledged assets is a gradual way to transfer more wealth to the already wealthy, then UBI would be a much “smoother” counterbalance to this process.
Brian_K_White 2y ago
Can you pay your tax on your unrealized gains with unrealized money?
Nifty3929 2y ago
Would this new tax create any more STUFF? The economy does not produce money - it produces stuff. Stuff like food, medicine and video games. Does taking this money from people - even very rich people - produce any additional stuff for the rest of us to consume? I don't see how. I can't eat money. I can't live in money. Will these rich people consume less stuff for themselves? Will it be enough less to matter to any of the rest of us? I doubt it. So what's the point of all this? How about we focus on producing more stuff, so that we have more stuff to live in, eat, or treat our bodies. If we produce more stuff, we will have more stuff. Taking money from rich people and giving it to everybody else will not help everybody else, since there will not be more stuff for them to buy.
- danaris 2y ago
  That's looking at the situation too simplistically. Stuff is produced when there is demand for it. When people have less money to spend, there is less demand. If this tax puts more money in the hands of the bottom 90%—and especially the bottom 50%—it will increase their buying power, which will increase demand, which means that, in all likelihood, more goods will be created for them to buy. ...I think it's also worth noting that for the vast, vast majority of people, what's standing in the way of them buying stuff is not the lack of stuff available to buy: it's lack of funds to buy it with. So on that front, too, your analysis doesn't really hold true.
gregatragenet3 2y ago
'Unrealized Gains' is one of the methods by which the wealthy avoid paying taxes. When you read the article about 'Billionaire X paid 2% taxes this year' this can be the cause. It works like this: you pay taxes on income, or realized gains (sold your stock). But you don't pay taxes on unrealized gains. You have TSLA/AMZN/NVDA stock which has gained $10M, and you have a mansion/yacht payment coming due. You could sell the stock and pay $2M in taxes... OR You can get a loan with your stock as collateral. You may pay 7% interest but you still OWN the stock and the S&P grows at a rate of 10%, netting you a 3% annual profit on your collateral stock. AND the interest might be tax deductible offsetting other income taxes you may owe. You pay 0% taxes because you didn't sell anything. Search for 'buy borrow die' for more resources on this strategy. This new tax proposal is trying to address the problem that the most wealthy individuals in our society pay a much lower percent in taxes compared to the average individual using this type of strategy.
kcb 2y ago
Surely this law that specifically effects holders of the assets we all have our retirements in will have no externalities which effect me.
cjbgkagh 2y ago
I think most people are OK with the $100M+ thresholds but are uneasy about the incentives this sets up where the government can extract large amounts of money from inflation which is in effect a tax on the poor and in general benefits the asset holding rich. And there is a reasonable expectation that the bands will lower over time in both nominal and real terms to cast an ever wider net. I have long maintained that this has to happen mathematically because the government needs more money and there are not many places where they can get it. A high enough unrealized gains tax coupled with a high enough inflation is in effect a wealth tax. A high enough wealth tax can in effect capture a large chunk of the profit from the wealth, theoretically it could go higher than 100% of profit (e.g. 50% income tax, 6% inflation, %4 profit on wealth = %2 profit after taxes - %3 tax on nominal asset gains = -1% p.a. in real wealth. It has the real potential to be confiscatory in nature. Even the risk of this would likely result in capital flight so this tax plan would have to be exported globally to limit the number of places that capital can escape to.

13 points by tldrthelaw 2y ago

This is a frightening idea -- being forced to pay taxes on speculative income you haven't actually earned yet will destroy small business and will inevitably be weaponized against anyone who owns any substantial assets, including residential property. If this passes, I hope the courts strike it down as unconstitutional on the grounds that unrealized gains don't qualify as "income" under the 16th amendment.

deleted 2y ago
[deleted]
mox1 2y ago
The Reddit /accounts were talking about this earlier this week and I think most of them had a pretty reasonable take. 1. If one uses an asset as collateral for a loan (be it stock or whatever else), for tax purposes treat that asset as sold, then immediately repurchased at the same price. 2. From there all of the usual tax laws can apply. So in theory this should get at the core of the actual problem, while avoiding at lot of the messiness of taxing un-realized gains. It's not perfect, but I think it helps align incentives well. Whoever is lending the money probably wants to know the value of the collateral. Lender and borrower are now both incentivized to come up with the real value at the time of the loan.
- awongh 2y ago
  Maybe it’s just a marketing problem then and it should be called asset collateral tax rather than unrealized gain tax, which on the face of it sounds kind of stupid.
- nightski 2y ago
  So small business can't take out loans unless they can realize and be taxed on the full valuation of their company immediately? As much as I can appreciate the goal, this is absurd.
  - kgwgk 2y ago
    Businesses =/= Businesses owners
    - nightski 2y ago
      For many small businesses, that is false. Sole proprietorships and pass through LLCs are extremely common.
      - kgwgk 2y ago
        And can those businesses currently take a loan to pay for the owner holidays or whatever?
        nightski 2y ago
        I do not see in the article where it says the loan has to be used for personal expenses. In fact from what I can tell it just says unrealized gains will be taxed regardless of whether a loan is taken out or not. The loan example is just used as a justification.
        kgwgk 2y ago
        You're the one who was talking about loans! In response to "If one uses an asset as collateral for a loan" you wrote "So small business can't take out loans unless they can realize and be taxed on the full valuation of their company".
        nightski 2y ago
        I was responding to the parent who also made no distinction that the loan was solely for personal purposes.
        kgwgk 2y ago
        The comment was about using assets as collateral for loans. Your response was about something else - or maybe it was not about anything, I'm not sure. A company can also get asset-backed loans using as collateral something the company owns - or it can get a completely different kind of loan where there is no specific asset used as guarantee.
- Spartan-S63 2y ago
  Yeah, I agree with this take. I think making an issue of unrealized gains isn't the real story here. Using unrealized gains/assets as collateral is the way the ultra-wealthy avoid large swaths of income tax. I see two reasonable paths forward for taxing using assets as collateral: 1. Treat it as a sale and repurchase (as you described) and transform capital gains into a progressive system 2. Treat the sale as earning income for purposes of using the traditional income tax brackets. Either way, you don't get into a weird speculative tax gray area. Rather it's when the ultra wealthy want cash-on-hand that they incur some kind of income tax penalty. Maybe even put in a reasonable exemption ($25-100k/year) that doesn't trigger tax so that middle class households aren't hamstrung by this.
  - cjbgkagh 2y ago
    One of the reasons I think politics is ok with income tax being where it is, is that the wealthy can currently avoid most of it. The wealthy can bring their money to bear to influence politics again to both broaden the scope so that the tax is more universally disliked and to create another carve out for themselves. Or at the very least situate themselves to benefit from government largess so that new taxes funding new spending is a net benefit for them. My main concern is that it puts the government in a position to greatly benefit from inflation, even more so than it does now, and inflation will be the hidden tax that hurts the poor.
  - opo 2y ago
    >...Using unrealized gains/assets as collateral is the way the ultra-wealthy avoid large swaths of income tax. There are many web sites that claim this, but are there any actual reliable stats on how many lifetime loans are being given out? It is common to make short terms based on using stocks, etc as collateral. But how common is it to have a lender be ok with either deferring interest for decades until the person dies or continually giving new loans out to cover the interest (on paper at least)? Doing a quick search, I have not found one stat on how many lifetime loans like this are actually being done. There is a treasury department page claiming that about 160 billion dollars in unrealized gains are not being taxed, but that isn't talking about stock being used as collateral, that is talking about simply the value of assets increasing - that is entirely different. (If unrealized nominal gains should be taxed, should decreases in the value of assets lead to a tax refund?) According to this: https://finance.yahoo.com/news/jeff-bezos-sell-5-billion-185303024.html https://finance.yahoo.com/news/jeff-bezos-sell-5-billion-185... Bezos has sold around $13.4 billion in stock in 2024. If he could easily avoid millions (maybe billions) of dollars of capital gains tax by this one simple technique, why wouldn't he have?
- rich_sasha 2y ago
  Interesting. How does this interact with something trivial like remortgaging a house? Say I bought a house for 100k, cash. Now it's worth 200k. I want to take another 50k mortgage on it. Do I realize cap gains on 25% of my house, i.e. an increase of value on 25k to 50k, and then I'm liable for cap gains on 25k? At 20% say, that's 5k tax. Unpleasant for sure, but doesn't seem out of proportion.
  - voisin 2y ago
    I believe it is only on unrealized gains over $100m.
- snapplebobapple 2y ago
  That will cause quite a painful but interesting deleveraging, i like it.
QuadmasterXLII 2y ago
My understanding of the proposal is that households worth more than $100 million would pay an annual minimum tax worth 25% of their combined income and unrealized capital gains. This doesn’t seem insane? In particular, that’s a hell of a residential property
- CamperBob2 2y ago
  [flagged]
  - jeffbee 2y ago
    Ah yes, the classic story: first they came for the hectomillionaires, and so forth.
    - deleted 2y ago
      [deleted]
    - greentxt 2y ago
      It's a story. But it is also an empirical question many people will be able to answer for themselves from abundant historical evidence no? Maybe people don't care about the data if they've never had difficulty paying their tax bill. I'm in the other camp, as are many working class people.
      - jeffbee 2y ago
        Sorry, could you restate your claim? It seemed as though you claimed that "many working people" have historically been taxed on their unrealized capital gains. After I fell off my stool laughing I wasn't sure you meant it.
        greentxt 2y ago
        My claim is that it's an empirical question whether tax policy drifts over time in such a way that more people pay more. Seems foolosh to argue over what can be easily quantified. In terms of my statement about many working people having trouble paying taxes, that too is quantifiable. As someone with many working poor friends I could offer anecdotes where people have to sell a car or do something drastic to pay their tax bill. The reason is that many working poor don't have normal middle class jobs where a portion of their salary is set aside for taxes. Everyone should pay taxes, even poor folks who don't have bank accounts or steady employment. My point is that these people hate taxes as much, likely more, than jeff bezos does. The people who seem to like taxes and tax increases (you may be one), tend to be upper middle class professionals who have never had to scramble to pay them for fear of prison or wage garnishment.
randomdata 2y ago
Especially when the stated concern is actual income already realized. Why not just tax the income?
- __loam 2y ago
  Because ultra rich people like Bezos can dodge taxes by taking loans against their unrealized gains indefinitely.
  - randomdata 2y ago
    Yes that’s the stated concern. The proceeds of a loan is realized income. Why not tax it? It is understandable why it wasn’t taxed historically, but as the article says, the market is changing.
    - Gormo 2y ago
      Yeah, it makes a lot more sense to treat liquidity achieved by collateralizing capital gains on assets as realized gains, and tax it as income, then to allow for blanket taxation of unrealized gains. But I'm still not sure what problem any of this is trying to solve in the first place. Does anyone seriously think this would solve the federal budget deficit?
      - randomdata 2y ago
        Taxes aren't really for budgetary matters. A government can simply print money for that. Taxes are mostly for: 1. Data collection. 2. Behaviour incentivization/disincentivization. 3. An avenue for money destruction. With inflation concerns still lingering, #3 is on minds. We also are coming to recognize that we don't actually have a great handle on how much wealth is out there, which is no doubt why this seeks to tax the wealth and not the associated income. But I suspect the greatest driver is that the general public are increasingly coming to think that the rich are not behaving in desirable ways and want to change their behaviour, with this being an appeal to that.
cma 2y ago
The United States had inheritance taxes before it had a federal income tax. The first federal inheritance tax in the U.S. was introduced in 1797 as a temporary measure to fund a potential war with France.
jfoutz 2y ago
unrealized gains in property are already taxed by "property taxes". If I buy a $1000 dollars worth of stock, and use that to secure a $1000 loan. ok, fine, I don't see why that should be taxed at all. But if the lender believes the stock is worth lots more, and offers a $2000 secured loan, something's going on there. I don't think it should be as much as actual capital gains, because it's not actually turned into cold hard cash. And there's still risk of the underlying asset price falling. But if the lender says my $1000 is worth $2000, I'm getting some benefit of the higher value. And I can see why that would be taxed. I'd really want to see the details. probably that tax should be deducted from capital gains when finally realized. I dunno. it's complicated.
- azulster 2y ago
  may be it shouldnt be the same as capital gains, but it should be related. like maybe it should be (capital gains tax rate - interest rate of loan) else it will simply be a way to continue to pay less taxes and still have your income as cash on hand
- danaris 2y ago
  The purpose of this isn't for someone who buys $1k of stock then uses that as collateral for a $1k loan. It's for someone who has zero traditional income, but owns stocks worth $100M+, and uses, say, $2M of that as collateral for a $2M loan so that they can have liquid assets.
  - jfoutz 2y ago
    I used small numbers to focus on the mechanism. I think the point is, if I purchased the sock for $100M+, that loan shouldn't be taxed. If I purchased that asset for $1M, and take a $2M loan, only the second M would be, in some sense, realized, and subject to the tax.
  - foobarian 2y ago
    But... how are they repaying the loan? Selling a little bit of stock now and then, which is then taxed?
voisin 2y ago
> destroy small business On the All-in Podcast they said it was only on unrealized gains over $100m. This is meant to target the Bezos and Musks of the world who can avoid taxes by borrowing against unrealized gains.

billconan 2y ago

I’ve been trying to understand how the budget proposal process works, including how it is voted on and approved, but I couldn’t find much information. For example, with FY2025 starting on October 1, 2024, does this mean any proposed tax rate hikes would take effect on that date, or would they start on January 1, 2025? Additionally, since Trump’s tax cuts are set to expire on December 31, 2025, does this guarantee that tax rates will remain unchanged until that date?

jeffbee 2y ago
Congress can change the rates at any time, and they can set the effective date to any date. Whether they would do that or not is an open question.
- billconan 2y ago
  Is there a way to track Congress’s activities related to potential tax rate changes? I’d like to stay informed and avoid being caught off guard by any sudden changes. I’ve looked into this, but it’s more complicated than I expected. For example, Congress votes on 12 separate appropriations bills related to the budget, and I’m not sure which ones impact tax rates or when those votes are scheduled?

jcpham2 2y ago

If you want capital flight this is how it starts. If this went into effect I would owe taxes on several hundred thousand dollars in gains that I can't afford, or I couldn't afford unless I sold stuff, causing more taxable gains. Seychelles shell corp looking pretty good right now.

kcb 2y ago
Don't forget once this mass sell off happens it's likely to tank the entire economy. But at least for a brief period the federal government will have to borrow $1 trillion instead of $1.5 trillion to cover the deficit.
__loam 2y ago
I'm under the impression that this policy would only apply to individuals with over $100m in assets. I'm sure there's reasonable provisions that could be applied to this with respect to liquidity. These proposals are obviously targeted at individuals like Jeff Bezos who do things like take out loans against their unrealized gains so they don't have to pay taxes on their wealth.
- greentxt 2y ago
  Policy targetted at one person, or a small heterogenous group of people, is not good policy.
  - __loam 2y ago
    Okay so are you just against progressive tax policy then? I don't really find myself having a lot of sympathy for people with over $100m in wealth, who seem to not be paying much in taxes relative to that wealth.
    - greentxt 2y ago
      Nor do I! I am as envious of them as anyone else. I don't own a home and likely never will, and it's because of rich people (and black rock) moving in a buying up homes for speculative/investment reasons mostly. Envy and housing market competition aside, morally it's a "camel through the eye of a needle" thing. Rich people should give more wealth away, for moral reasons. But I also think policy shouldn't be based on (these) sentiments alone. Policy should be judged by it's net impact. This seems like absudly myopic policy, coming from the same bright minds who gave us a 2 trillion dollar stimulus package they named "inflation reduction act" that was a net negative for working people, but a boon bureaucrats and other industry special interests.

jawns 2y ago

> If, however, we consider the fact that the aforementioned billionaire could borrow money using the appreciated stock as collateral — perhaps, say, to purchase a social media company — we might feel somewhat differently. After all, absent some mechanism by which the billionaire can be taxed, they can at least in theory defer ever realizing their gains by continually borrowing against their stock rather than selling any of it. This line is a great way to both throw shade and to make it clear that there are real-world examples of people currently exploiting this strategy. I wonder if it would be possible to just say, "If you have unrealized gains and aren't borrowing against them, then no taxes are necessary, but if you attempt to borrow against them, then they are treated as 'realized' even if they're not sold." That protects the interests of people who don't have the option to realize their assets (e.g. no liquidity event available) while still closing the loophole that allows billionaires to borrow against those assets tax-free.

Xcelerate 2y ago

How do ideas like this actually get taken seriously? Is this just for votes? I’m all for the end goal here but mandating it by fiat seems to ignore various unpredictable second order effects that could crash the economy and drive innovation out of the U.S. Too many unknown unknowns. I would be much more in favor of implementing universal basic income instead of taxing unrealized capital gains. If the stock market + inflation + pledged assets is a gradual way to transfer more wealth to the already wealthy, then UBI would be a much “smoother” counterbalance to this process.

Brian_K_White 2y ago

Can you pay your tax on your unrealized gains with unrealized money?

Nifty3929 2y ago

Would this new tax create any more STUFF? The economy does not produce money - it produces stuff. Stuff like food, medicine and video games. Does taking this money from people - even very rich people - produce any additional stuff for the rest of us to consume? I don't see how. I can't eat money. I can't live in money. Will these rich people consume less stuff for themselves? Will it be enough less to matter to any of the rest of us? I doubt it. So what's the point of all this? How about we focus on producing more stuff, so that we have more stuff to live in, eat, or treat our bodies. If we produce more stuff, we will have more stuff. Taking money from rich people and giving it to everybody else will not help everybody else, since there will not be more stuff for them to buy.

danaris 2y ago
That's looking at the situation too simplistically. Stuff is produced when there is demand for it. When people have less money to spend, there is less demand. If this tax puts more money in the hands of the bottom 90%—and especially the bottom 50%—it will increase their buying power, which will increase demand, which means that, in all likelihood, more goods will be created for them to buy. ...I think it's also worth noting that for the vast, vast majority of people, what's standing in the way of them buying stuff is not the lack of stuff available to buy: it's lack of funds to buy it with. So on that front, too, your analysis doesn't really hold true.

gregatragenet3 2y ago

'Unrealized Gains' is one of the methods by which the wealthy avoid paying taxes. When you read the article about 'Billionaire X paid 2% taxes this year' this can be the cause. It works like this: you pay taxes on income, or realized gains (sold your stock). But you don't pay taxes on unrealized gains. You have TSLA/AMZN/NVDA stock which has gained $10M, and you have a mansion/yacht payment coming due. You could sell the stock and pay $2M in taxes... OR You can get a loan with your stock as collateral. You may pay 7% interest but you still OWN the stock and the S&P grows at a rate of 10%, netting you a 3% annual profit on your collateral stock. AND the interest might be tax deductible offsetting other income taxes you may owe. You pay 0% taxes because you didn't sell anything. Search for 'buy borrow die' for more resources on this strategy. This new tax proposal is trying to address the problem that the most wealthy individuals in our society pay a much lower percent in taxes compared to the average individual using this type of strategy.

kcb 2y ago

Surely this law that specifically effects holders of the assets we all have our retirements in will have no externalities which effect me.

cjbgkagh 2y ago

I think most people are OK with the $100M+ thresholds but are uneasy about the incentives this sets up where the government can extract large amounts of money from inflation which is in effect a tax on the poor and in general benefits the asset holding rich. And there is a reasonable expectation that the bands will lower over time in both nominal and real terms to cast an ever wider net. I have long maintained that this has to happen mathematically because the government needs more money and there are not many places where they can get it. A high enough unrealized gains tax coupled with a high enough inflation is in effect a wealth tax. A high enough wealth tax can in effect capture a large chunk of the profit from the wealth, theoretically it could go higher than 100% of profit (e.g. 50% income tax, 6% inflation, %4 profit on wealth = %2 profit after taxes - %3 tax on nominal asset gains = -1% p.a. in real wealth. It has the real potential to be confiscatory in nature. Even the risk of this would likely result in capital flight so this tax plan would have to be exported globally to limit the number of places that capital can escape to.