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This might be unpopular but I think there are ways that taxing unrealized capital gains could work without being super radical. 1. Allow unrealized losses to b

by xmprt 2y ago

This might be unpopular but I think there are ways that taxing unrealized capital gains could work without being super radical. 1. Allow unrealized losses to be deducted. 2. Once a certain percentage of the gain is taxed, step up the cost basis by the amount of tax paid. That way you avoid double taxation (once under the unrealized value and again when the asset is sold). 3. (optional) Keep the tax rate on unrealized gains low. Even 3% would be significantly higher than what we have today. Under this logic, it almost seems like a no brainer. People who have a ton of wealth in unrealized gains would pay taxes progressively over time instead of being hit with a massive tax bill when they sell (or potentially no tax bill when they die due to the step up in cost basis). Feel free to poke loopholes in this idea.

zkelvin 2y ago
Taxing unrealized capital gains already isn't all that radical -- property tax is effectively a tax on unrealized gains of property value, and essentially every municipality has that tax.
- ramraj07 2y ago
  Why isn’t every person defending this idea mentioning this fact. It’s so obvious once you mention it.
- zoklet-enjoyer 2y ago
  Property tax is very unpopular, at least where I live.
- lokar 2y ago
  Except (sort of) California Also, there is a real debate to be had about if housing should be primary considered an investment or a basic need by society. Many argue that the focus on housing as an investment in the US is a primary driver of our housing problems.
- loeg 2y ago
  Property tax is a straightforward wealth tax on a certain class of asset, not a tax on appreciation.
- hiatus 2y ago
  Property taxes do not take into account the amount you paid for your house, so they are not a tax on unrealized gains since the gains are not calculated. You could be underwater on your mortgage and you would be taxed just the same.
- smsm42 2y ago
  Nope it is not. Property tax does not take any gains into account - it's tax on full value (with possible exemptions) not gains, you pay the same regardless whether you bought it for $1 or $1M. Except of course in California where they have this weird scheme which led to the fact that my next door neighbor paid less than half of the property tax I did for pretty much identical house (because they bought it in the 80s) - which looks like negative tax on gains.
- hnburnsy 2y ago
  > Taxing unrealized capital gains already isn't all that radical -- property tax is effectively a tax on unrealized gains of property value, and essentially every municipality has that tax. Property taxes are a use tax (roads, police, fire, schools, etc), apportioned base on property value, it is not a capital gains tax.
- w4 2y ago
  In addition to what everyone has already said, property taxes paid are also very explicitly deductible from income taxes. They’re more like an indirect transfer from the Federal government to municipalities, and don’t necessarily result in a substantial aggregate increase in tax burdens.
  - loeg 2y ago
    Deductible modulo SALT cap.
w4 2y ago
> 1. Allow unrealized losses to be deducted. This seemed really reasonable to me until I started thinking about how it might work in practice. The sequence of returns can make this proposal ineffective in practice, even if it makes sense on first blush. By way of explanation: Let's say you're the founder of Pets.com in an alternate universe where unrealized gains have always been taxed (and correspondingly unrealized losses can be deducted). It's 2000, and you've just had an incredible run. You have also paid incredible taxes along the way. Then your company blows up and goes to zero. Now you've payed an incredible amount of taxes on your paper gains, and have realized no gains whatsoever. So the entire enterprise only resulted in an enormous real loss to you. Sure you can now carry forward those losses, but so what? You're never going to make up the difference, unless we're also letting your heirs carry forward those losses into the next century or two. Given the exposure to massive tax bills without any actual profits, who in their right mind would start or invest in a business under that tax code? Who would dare invest a large portion of their personal worth in public equities given the risk that they plummet, as they did in 2022, 2020, 2008, 2001, 2000, 1987, 1962, 1929, 1907, etc.? Who would take a gamble on a big real estate development? And so on. It seems to me that a tax on unrealized gains massively disincentivizes investment and the creation of anything new, and therefore the only way to tax capital gains that makes sense is if we calculate the tax due based on when chips are taken off the table. Issues like Buy, Borrow, Die are better addressed with other changes to the tax code that undo the weird incentivizes presently in place (e.g. eliminating the step-up basis, possibly at some threshold if the goal is to make the tax code more progressive). Unless, that is, your goal is to actively disincentivize entrepreneurship and investment. Which if it is, I guess fair enough, but then none of us should be surprised to find ourselves with a lower standard of living in a decade as a result.
- Rury 2y ago
  I think what you do is simply tax stock ownership. Say you own 100 shares of stock. A 2% tax would mean the government would confiscate 2 of your shares, so you then own 98 shares. The government then proceeds to sell their confiscated shares on the open market (not at once, but spread out over the next year) and use the proceeds as tax revenue. You as an investor can maintain your 100 shares of stock by simply buying back the shares on the open market (or not and so pay a smaller capital gains tax than you otherwise would when you sell. This is your cost basis being adjusted). This also doesn't necessarily disincentive investing, as the tax proceeds can be used for funding jobs (ie investment), and owning stocks can still be worthwhile. That said, I don't see why there's a need for a deduction here. There isn't one for property taxes. Sure there is one when you sell your property at a loss, and that's also already the case when selling stock. Additionally such a tax like this won't ever cause you to lose your entire stock ownership as it's always based on a fraction of your ownership. And, last but not least, you could also impose caps or progressions.

by xmprt 2y ago

zkelvin 2y ago

Taxing unrealized capital gains already isn't all that radical -- property tax is effectively a tax on unrealized gains of property value, and essentially every municipality has that tax.

ramraj07 2y ago
Why isn’t every person defending this idea mentioning this fact. It’s so obvious once you mention it.
zoklet-enjoyer 2y ago
Property tax is very unpopular, at least where I live.
lokar 2y ago
Except (sort of) California Also, there is a real debate to be had about if housing should be primary considered an investment or a basic need by society. Many argue that the focus on housing as an investment in the US is a primary driver of our housing problems.
loeg 2y ago
Property tax is a straightforward wealth tax on a certain class of asset, not a tax on appreciation.
hiatus 2y ago
Property taxes do not take into account the amount you paid for your house, so they are not a tax on unrealized gains since the gains are not calculated. You could be underwater on your mortgage and you would be taxed just the same.
smsm42 2y ago
Nope it is not. Property tax does not take any gains into account - it's tax on full value (with possible exemptions) not gains, you pay the same regardless whether you bought it for $1 or $1M. Except of course in California where they have this weird scheme which led to the fact that my next door neighbor paid less than half of the property tax I did for pretty much identical house (because they bought it in the 80s) - which looks like negative tax on gains.
hnburnsy 2y ago
> Taxing unrealized capital gains already isn't all that radical -- property tax is effectively a tax on unrealized gains of property value, and essentially every municipality has that tax. Property taxes are a use tax (roads, police, fire, schools, etc), apportioned base on property value, it is not a capital gains tax.
w4 2y ago
In addition to what everyone has already said, property taxes paid are also very explicitly deductible from income taxes. They’re more like an indirect transfer from the Federal government to municipalities, and don’t necessarily result in a substantial aggregate increase in tax burdens.
- loeg 2y ago
  Deductible modulo SALT cap.

w4 2y ago

> 1. Allow unrealized losses to be deducted. This seemed really reasonable to me until I started thinking about how it might work in practice. The sequence of returns can make this proposal ineffective in practice, even if it makes sense on first blush. By way of explanation: Let's say you're the founder of Pets.com in an alternate universe where unrealized gains have always been taxed (and correspondingly unrealized losses can be deducted). It's 2000, and you've just had an incredible run. You have also paid incredible taxes along the way. Then your company blows up and goes to zero. Now you've payed an incredible amount of taxes on your paper gains, and have realized no gains whatsoever. So the entire enterprise only resulted in an enormous real loss to you. Sure you can now carry forward those losses, but so what? You're never going to make up the difference, unless we're also letting your heirs carry forward those losses into the next century or two. Given the exposure to massive tax bills without any actual profits, who in their right mind would start or invest in a business under that tax code? Who would dare invest a large portion of their personal worth in public equities given the risk that they plummet, as they did in 2022, 2020, 2008, 2001, 2000, 1987, 1962, 1929, 1907, etc.? Who would take a gamble on a big real estate development? And so on. It seems to me that a tax on unrealized gains massively disincentivizes investment and the creation of anything new, and therefore the only way to tax capital gains that makes sense is if we calculate the tax due based on when chips are taken off the table. Issues like Buy, Borrow, Die are better addressed with other changes to the tax code that undo the weird incentivizes presently in place (e.g. eliminating the step-up basis, possibly at some threshold if the goal is to make the tax code more progressive). Unless, that is, your goal is to actively disincentivize entrepreneurship and investment. Which if it is, I guess fair enough, but then none of us should be surprised to find ourselves with a lower standard of living in a decade as a result.

Rury 2y ago
I think what you do is simply tax stock ownership. Say you own 100 shares of stock. A 2% tax would mean the government would confiscate 2 of your shares, so you then own 98 shares. The government then proceeds to sell their confiscated shares on the open market (not at once, but spread out over the next year) and use the proceeds as tax revenue. You as an investor can maintain your 100 shares of stock by simply buying back the shares on the open market (or not and so pay a smaller capital gains tax than you otherwise would when you sell. This is your cost basis being adjusted). This also doesn't necessarily disincentive investing, as the tax proceeds can be used for funding jobs (ie investment), and owning stocks can still be worthwhile. That said, I don't see why there's a need for a deduction here. There isn't one for property taxes. Sure there is one when you sell your property at a loss, and that's also already the case when selling stock. Additionally such a tax like this won't ever cause you to lose your entire stock ownership as it's always based on a fraction of your ownership. And, last but not least, you could also impose caps or progressions.