12 ms·

Unrealized gains taxes are a pointless hassle. Much better ways to tax the rich

27 points by NavinF 2y ago

NavinF 2y ago
tl;dr if you want to raise taxes, just raise taxes (income tax, cap gains tax, etc) >But then some wonky progressive intellectuals got really upset over the fact that some rich people seem to be getting richer without paying any taxes at all. If the value of your stock goes up, you don’t have to pay capital gains taxes until you sell the stock. So all the rich people in America are sitting there, getting richer on paper year after year, without paying a dime in taxes (until some unspecified future date). That’s the way things have always worked — and the way things work in every other country — but if you’re a progressive intellectual who spends a lot of time thinking about the wealth inequality numbers, it seems quite unfair. And no, you can't get around the obvious issues with the new tax by only applying it to people with assets that are easy to valuate. "If you only tax unrealized gains for people who have >80% of their wealth in liquid assets, the super-rich will just go around buying up land until 20.01% of their wealth is in land" https://x.com/Noahpinion/status/1832660857043501498 https://x.com/Noahpinion/status/1832660857043501498
- usrusr 2y ago
  > the super-rich will just go around buying up land until 20.01% of their wealth is in land" No, only until every last tiny scrap of land is owned by the super-rich. Capital accretion without any occasional catastrophic reset makes that only a matter of time.
  - NavinF 2y ago
    > only a matter of time How long? Months? Years? Decades? I'd be happy to bet money on this if you have a serious prediction
bryanlarsen 2y ago
People mean (at leat) two different things when they're talking about "unrealized gains taxes". 1. Taxing truly unrealized gains 2. Taxing mechanisms people use to get around gains taxes The main loophole at the moment is the loan loophole: the rich get a loan against their unrealized gains. Then they can spend their unrealized gains without paying taxes on the gains. Closing this loophole is a really good idea, but that's all it is, it's closing a loophole. Calling it a tax on unrealized gains is counter-productive. You'll get much more support if you just call it "closing a loophole". Taking a loan against a gain and other mechanisms of avoiding taxes should be treated as a deemed disposition.
- mjevans 2y ago
  Just like 'Land Value Tax' needs a mechanism of market evaluation of property (and current use / contents) value as a fix, I think a similar solution can apply to taxes. Require a reporting of all liquid cash, property of substantive (resellable) value, and 'investments' of any sort. Liabilities could also be considered for a literal Net Worth tax. In that evaluation the 'self loan' loophole should equal out to cash on hand / value and also an unpaid liability.
  - alchemist1e9 2y ago
    “I have never understood why it is ‘greed’ to want to keep the money you have earned but not greed to want to take somebody else’s money.”
    - HideousKojima 2y ago
      Because as Jesus said, "If there be any poor among you, do not give of your substance to them. Rather, have the Romans take it from that rich jerk down the road at spear-point and have them give a pittance to the poor and waste the rest on bureaucracy and wars."
      - spencerflem 2y ago
        Jesus was famous for upturning the tables of the money lenders, and their church has a tithe
        HideousKojima 2y ago
        Both of which are fine by me, and neither of which are state enforced resdistribution schemes to (allegedly) help the poor, so what's your point?
        spencerflem 2y ago
        My point is, Jesus is not a good source to say that having Billionaires and Hundred Billionaires are OK, Here's an actual quote, not a made up sarcastic one "Then Jesus said to his disciples, “Truly I tell you, it is hard for someone who is rich to enter the kingdom of heaven. 24 Again I tell you, it is easier for a camel to go through the eye of a needle than for someone who is rich to enter the kingdom of God.” and that the church itself runs one of the biggest "redistribution schemes"
braza 2y ago
My general curiosity on this topic is has someone thought about the second-order effects around it? Either positive or negative. For the taxation side sounds good but for me it's hard to understand the negativity around this by the people who will pay for it.
- namlem 2y ago
  Here is someone who has thought about second order effects https://x.com/memeticsisyphus/status/1832869758179381487 https://x.com/memeticsisyphus/status/1832869758179381487
- Izkata 2y ago
  Erasing retirement accounts and causing a depression due to a market crash when the wealthy respond to the change? It's a tax on money that doesn't actually exist yet, and may never exist if the stock price goes back down before you sell it. This makes investing too risky so the wealthy are going to find other ways to handle their wealth.
hd4 2y ago
I liked the argument put forth by Trevor Noah here in favor of taxing unrealized gains: https://x.com/SPC_Harry/status/1828873257530839210 https://x.com/SPC_Harry/status/1828873257530839210 As the article points out, Harris's proposal would only kick in at $100M. I don't see how anyone should be against it.
- namlem 2y ago
  Here is a good explanation of why you should be against it https://x.com/memeticsisyphus/status/1832869758179381487 https://x.com/memeticsisyphus/status/1832869758179381487
  - _uhtu 2y ago
    This is a terrible argument. It implies the money is destroyed by taxation. In reality that money would go towards relieving the governments need to collect other tax revenues. So for example you could increase the standard deduction. Now everyone pays less tax and can either contribute more to their 401k (boosting stock values) or buying more things (boosting stock values). If you want to say the government is incompetent and will waste the money, that doesn't apply here because it applies to every tax, not specifically this one.
    - namlem 2y ago
      Value is destroyed by deadweight loss https://en.wikipedia.org/wiki/Deadweight_loss?wprov=sfla1 https://en.wikipedia.org/wiki/Deadweight_loss?wprov=sfla1
    - slowmovintarget 2y ago
      There's no world where the government takes money from taxpayers and doesn't just turn around and spend it. Often this spending is several orders of magnitude more wasteful than private individuals spending their own money, because government agencies have extremely weak incentives to spend efficiently. They spend, run out of money, and just stop whatever they were doing because, oops, out of money until the next budgeting cycle. Value is destroyed by taxation, money is just a proxy. We spend on government because there are things we need that only government can do. Wealth transfer is not one of them.
el_jay 2y ago
Why no mention of a simple wealth tax? The Swiss take 1% of each citizens’ wealth, including unrealised gains on capital market holdings, every year. Paired with a policy of zero cap gains taxes on individuals - unless cap gains are that individual’s sole or major source of income, in which case they are taxable as income - this appears to strike the right balance between raising revenue and encouraging investment, without frightening off too many rich people. Seems much more straightforward than faffing about with unrealised gains.
- pjerem 2y ago
  It can even be stepped. In France we had a wealth tax but only for people who owned over 1 300 000 € in wealth. Had because Macron stopped it because apparently it would make the rich leave the country which was pretty stupid since the first version of this tax was from 1945 and France is known to host a lot of ultra rich people.
  - yunohn 2y ago
    Interesting, that sounds like a more reasonable threshold than the Netherlands with 30k€ earlier and since 2023, 50k€.
- HDThoreaun 2y ago
  Too easy to avoid. France tried and all the wealth fled, no money raised by the tax.
big-green-man 2y ago
This isn't about racing the rich. It's about propping up the US dollar and kicking the can down the road. Think about it. "Rich people would have to tank the market yearly just to pay their taxes." Except they wouldn't do that. They'd store the tax rate on their expected gain in dollars. That puts a significant demand on USD. Every year, spending a portion of their revenue by parking it in a bank waiting for Jan 1st. That's what it is about.
lifeisstillgood 2y ago
This is a good video from a UK campaigner https://youtu.be/CkJxUR9Fc9s?si=QZzK9OjLWuLgR-65 https://youtu.be/CkJxUR9Fc9s?si=QZzK9OjLWuLgR-65 The same argument and much more “fairness” as a principle
readthenotes1 2y ago
It raise taxes on the rich they will just find some way to avoid it as they always have. Steven Brust says: Every law is an opportunity
yunohn 2y ago
I don’t understand why anyone is taking this “tax on unrealized gains” proposal seriously. Literally, never has a politician passed a law that hurts themselves or their elite donors, unless there’s sufficient loopholes. We can 100% safely assume it just an election talking point, and the final law (if any) will be completely useless.
greyface- 2y ago
Income is fundamentally different from wealth. Taxing wealth is fundamentally different from taxing income. Wealth generates income, but taxing high income does not chip away at wealth, even at very high marginal rates. A tax on unrealized capital gains does chip away at wealth. The problem is not "those evil evil rich people are not taxed enough". The problem is "extreme wealth is self-perpetuating, regardless of income tax rates". Raising marginal income tax rates for the rich, raising capital gains tax rates, etc., does not solve the problem, even though it looks similar if you squint a bit, or listen to commentators who conflate wealth and income.

27 points by NavinF 2y ago

tl;dr if you want to raise taxes, just raise taxes (income tax, cap gains tax, etc) >But then some wonky progressive intellectuals got really upset over the fact that some rich people seem to be getting richer without paying any taxes at all. If the value of your stock goes up, you don’t have to pay capital gains taxes until you sell the stock. So all the rich people in America are sitting there, getting richer on paper year after year, without paying a dime in taxes (until some unspecified future date). That’s the way things have always worked — and the way things work in every other country — but if you’re a progressive intellectual who spends a lot of time thinking about the wealth inequality numbers, it seems quite unfair. And no, you can't get around the obvious issues with the new tax by only applying it to people with assets that are easy to valuate. "If you only tax unrealized gains for people who have >80% of their wealth in liquid assets, the super-rich will just go around buying up land until 20.01% of their wealth is in land" https://x.com/Noahpinion/status/1832660857043501498 https://x.com/Noahpinion/status/1832660857043501498

usrusr 2y ago
> the super-rich will just go around buying up land until 20.01% of their wealth is in land" No, only until every last tiny scrap of land is owned by the super-rich. Capital accretion without any occasional catastrophic reset makes that only a matter of time.
- NavinF 2y ago
  > only a matter of time How long? Months? Years? Decades? I'd be happy to bet money on this if you have a serious prediction

bryanlarsen 2y ago

People mean (at leat) two different things when they're talking about "unrealized gains taxes". 1. Taxing truly unrealized gains 2. Taxing mechanisms people use to get around gains taxes The main loophole at the moment is the loan loophole: the rich get a loan against their unrealized gains. Then they can spend their unrealized gains without paying taxes on the gains. Closing this loophole is a really good idea, but that's all it is, it's closing a loophole. Calling it a tax on unrealized gains is counter-productive. You'll get much more support if you just call it "closing a loophole". Taking a loan against a gain and other mechanisms of avoiding taxes should be treated as a deemed disposition.

mjevans 2y ago
Just like 'Land Value Tax' needs a mechanism of market evaluation of property (and current use / contents) value as a fix, I think a similar solution can apply to taxes. Require a reporting of all liquid cash, property of substantive (resellable) value, and 'investments' of any sort. Liabilities could also be considered for a literal Net Worth tax. In that evaluation the 'self loan' loophole should equal out to cash on hand / value and also an unpaid liability.
- alchemist1e9 2y ago
  “I have never understood why it is ‘greed’ to want to keep the money you have earned but not greed to want to take somebody else’s money.”
  - HideousKojima 2y ago
    Because as Jesus said, "If there be any poor among you, do not give of your substance to them. Rather, have the Romans take it from that rich jerk down the road at spear-point and have them give a pittance to the poor and waste the rest on bureaucracy and wars."
    - spencerflem 2y ago
      Jesus was famous for upturning the tables of the money lenders, and their church has a tithe
      - HideousKojima 2y ago
        Both of which are fine by me, and neither of which are state enforced resdistribution schemes to (allegedly) help the poor, so what's your point?
        spencerflem 2y ago
        My point is, Jesus is not a good source to say that having Billionaires and Hundred Billionaires are OK, Here's an actual quote, not a made up sarcastic one "Then Jesus said to his disciples, “Truly I tell you, it is hard for someone who is rich to enter the kingdom of heaven. 24 Again I tell you, it is easier for a camel to go through the eye of a needle than for someone who is rich to enter the kingdom of God.” and that the church itself runs one of the biggest "redistribution schemes"

braza 2y ago

My general curiosity on this topic is has someone thought about the second-order effects around it? Either positive or negative. For the taxation side sounds good but for me it's hard to understand the negativity around this by the people who will pay for it.

namlem 2y ago
Here is someone who has thought about second order effects https://x.com/memeticsisyphus/status/1832869758179381487 https://x.com/memeticsisyphus/status/1832869758179381487
Izkata 2y ago
Erasing retirement accounts and causing a depression due to a market crash when the wealthy respond to the change? It's a tax on money that doesn't actually exist yet, and may never exist if the stock price goes back down before you sell it. This makes investing too risky so the wealthy are going to find other ways to handle their wealth.

hd4 2y ago

I liked the argument put forth by Trevor Noah here in favor of taxing unrealized gains: https://x.com/SPC_Harry/status/1828873257530839210 https://x.com/SPC_Harry/status/1828873257530839210 As the article points out, Harris's proposal would only kick in at $100M. I don't see how anyone should be against it.

namlem 2y ago
Here is a good explanation of why you should be against it https://x.com/memeticsisyphus/status/1832869758179381487 https://x.com/memeticsisyphus/status/1832869758179381487
- _uhtu 2y ago
  This is a terrible argument. It implies the money is destroyed by taxation. In reality that money would go towards relieving the governments need to collect other tax revenues. So for example you could increase the standard deduction. Now everyone pays less tax and can either contribute more to their 401k (boosting stock values) or buying more things (boosting stock values). If you want to say the government is incompetent and will waste the money, that doesn't apply here because it applies to every tax, not specifically this one.
  - namlem 2y ago
    Value is destroyed by deadweight loss https://en.wikipedia.org/wiki/Deadweight_loss?wprov=sfla1 https://en.wikipedia.org/wiki/Deadweight_loss?wprov=sfla1
  - slowmovintarget 2y ago
    There's no world where the government takes money from taxpayers and doesn't just turn around and spend it. Often this spending is several orders of magnitude more wasteful than private individuals spending their own money, because government agencies have extremely weak incentives to spend efficiently. They spend, run out of money, and just stop whatever they were doing because, oops, out of money until the next budgeting cycle. Value is destroyed by taxation, money is just a proxy. We spend on government because there are things we need that only government can do. Wealth transfer is not one of them.

el_jay 2y ago

Why no mention of a simple wealth tax? The Swiss take 1% of each citizens’ wealth, including unrealised gains on capital market holdings, every year. Paired with a policy of zero cap gains taxes on individuals - unless cap gains are that individual’s sole or major source of income, in which case they are taxable as income - this appears to strike the right balance between raising revenue and encouraging investment, without frightening off too many rich people. Seems much more straightforward than faffing about with unrealised gains.

pjerem 2y ago
It can even be stepped. In France we had a wealth tax but only for people who owned over 1 300 000 € in wealth. Had because Macron stopped it because apparently it would make the rich leave the country which was pretty stupid since the first version of this tax was from 1945 and France is known to host a lot of ultra rich people.
- yunohn 2y ago
  Interesting, that sounds like a more reasonable threshold than the Netherlands with 30k€ earlier and since 2023, 50k€.
HDThoreaun 2y ago
Too easy to avoid. France tried and all the wealth fled, no money raised by the tax.

big-green-man 2y ago

This isn't about racing the rich. It's about propping up the US dollar and kicking the can down the road. Think about it. "Rich people would have to tank the market yearly just to pay their taxes." Except they wouldn't do that. They'd store the tax rate on their expected gain in dollars. That puts a significant demand on USD. Every year, spending a portion of their revenue by parking it in a bank waiting for Jan 1st. That's what it is about.

lifeisstillgood 2y ago

This is a good video from a UK campaigner https://youtu.be/CkJxUR9Fc9s?si=QZzK9OjLWuLgR-65 https://youtu.be/CkJxUR9Fc9s?si=QZzK9OjLWuLgR-65 The same argument and much more “fairness” as a principle

readthenotes1 2y ago

It raise taxes on the rich they will just find some way to avoid it as they always have. Steven Brust says: Every law is an opportunity

yunohn 2y ago

I don’t understand why anyone is taking this “tax on unrealized gains” proposal seriously. Literally, never has a politician passed a law that hurts themselves or their elite donors, unless there’s sufficient loopholes. We can 100% safely assume it just an election talking point, and the final law (if any) will be completely useless.

greyface- 2y ago

Income is fundamentally different from wealth. Taxing wealth is fundamentally different from taxing income. Wealth generates income, but taxing high income does not chip away at wealth, even at very high marginal rates. A tax on unrealized capital gains does chip away at wealth. The problem is not "those evil evil rich people are not taxed enough". The problem is "extreme wealth is self-perpetuating, regardless of income tax rates". Raising marginal income tax rates for the rich, raising capital gains tax rates, etc., does not solve the problem, even though it looks similar if you squint a bit, or listen to commentators who conflate wealth and income.