5 ms·

But you haven't gained... you could be taxed over and over again, and if the stick drops or hits zero then what? It's all on paper and not "real".

by aeonik 1y ago

lesuorac 1y ago
imo, it's in the best interest of the market for people to have to realize their gains otherwise the price of an item is pretty imaginary if it's never realized.
- jandrewrogers 1y ago
  Gains are frequently not realizable as a matter of law and/or contract, for good reason. Additionally, there are many assets with notional value conditional on not liquidating them, which makes them de facto not realizable. And of course, the majority of assets have no liquidity, so realizability is a practical fiction. The unrealized values are a fiction. There is significant value in treating values as unknowable when they are, in fact, unknowable. Forcing people to make up a fake valuation creates a lot of adverse incentives.
  - dragonwriter 1y ago
    > The unrealized values are a fiction. Then instead of taxing the gains, you'd accept the government nationalizing the assets by eminent domain and paying fair compensation that was significantly less than the "fictional" unrealized value? Or if someone unlawfully deprived you of the asset, you'd accept as restitution or seek as civil damages for the loss something significantly less than the "fictional" value? Or, when it was no longer an excuse to avoid fair taxation, would that "fiction" suddenly be a lot more real to you?
    - sarchertech 1y ago
      It would be much better to tax the benefits of the unrealized gain that a person realizes. It’s much easier to do because there is no disputing the assessment since the person implicitly agrees to the valuation. And it allows people to forgo realizing any benefit from the unrealized value at all to avoid taxation. Say take x% of the top of the money lent to someone who uses their unrealized gain to secure a loan. Make the money paid count against any tax they owe if they sell the asset later.
      - Dylan16807 1y ago
        "uses their unrealized gain to secure a loan" sounds impossible to define with enough precision that you could base taxes off of it.
        sarchertech 1y ago
        Have you taken out a secured loan in the last year over x amount? Take the value of the asset assessed by the bank and the price paid for the asset to find the total value that is unrealized gain. Divide that by the total value to get percent of collateral that is unrealized gain. Multiply that by the loan value. Then multiply that by the tax percentage. All you need is for banks to report secured loans to the IRS and it’s easy.
        Dylan16807 1y ago
        Secured loans of that form are easy, sure. But if those skyrocket in price from tax, they'll be more subtle about convincing banks they're good for the money and pay a slightly higher rate for unsecured loans. Or maybe they'll just treat the asset securing the loan as having the pre-gains price. Get the bank to agree it's worth at least what you paid, with no further analysis. If you try to plug those loopholes you lose the "much easier to do because there is no disputing the assessment since the person implicitly agrees to the valuation" factor.
        sarchertech 1y ago
        >treat the asset securing the loan as having the pre-gains price That’s no different than if the asset had no unrealized gain at all. >they’ll be more subtle It only takes a small rise in interest rates before it’s cheaper to pay the tax—assuming the tax isn’t outrageous. Unsecured are much riskier because of the way unsecured creditors are treated in bankruptcy, so they already have higher interest rates. It would be very easy to tweak bankruptcy laws to make unsecured loans over a certain amount a bit riskier to increase the delta even more. We also already have regulations governing how banks assess creditworthiness, and the percent of their capital they can lend unsecured based on risk. As well as the amount of unsecured loans they can make to signal individual. If necessary tweak those values. Another easy way is to add a surcharge to large unsecured loans where the loan amount exceeds the taxpayer’s assets based on acquisition price by some large margin. None of those impact implicitly agreeing to the valuation and they are all pretty easy to do.
    - jandrewrogers 1y ago
      You are basically making my case for me. It is widely recognized that replacement value differs materially from notional value. In such cases you may be required to pay much more than notional value because you have to pay for liquidity costs that only exist when transactions are forced to occur. The act of transacting can intrinsically change the asset value, sometimes by a large factor. Are you oblivious to the extensive litigation that occurs in cases like eminent domain because there are substantial differences of opinion on even the notional value, never mind the realizable value? Notional valuations are fiction, everywhere and at all times. Treating them as some kind of objective reality is just enabling a lot of abuse and motivated reasoning.
dragonwriter 1y ago
> But you haven't gained... Yes, you have. You have an asset of greater value which you can leverage in a number of ways without liquidating it and "realizing" the gains. That's a real gain, with real value. > you could be taxed over and over again Only if you make new unrealized gains. > and if the stick drops or hits zero then what? Then you have a negative unrealized gain, or, equivalently, an unrealized loss. If you are taxing unrealized gains instead of taxing gains when realized, then the natural assumption would be, just as is done with taxing gains at realization, that negative unrealized gains are either offset against current income or against future unrealized gains, and so effectively create (considered on their own) negative (current or future) taxes. The simplest form of this is to offset only against future gains, by the simple mechanism that when gains are recognized for tax purposes, they adjust the basis value of the asset, and when unrealized losses occur, they don't effect the basis value at all, so you don't have a taxable unrealized gain again until the market value exceeds the basis value established at the prior peak. More complex versions would allow you to offset some or all of the unrealized loss from the prior basis value against current income of other forms, but the amount of that offset would reduce the basis value of the asset.
- jandrewrogers 1y ago
  The unrealized value is notional, not actual. This is a very important distinction. The notional value is often not remotely realizable. In many cases, the realizable value can be a tiny fraction of the notional value. Most laypeople grossly conflate notional and real value. Taxing notional value massively inflates the adverse impact of tax incidence on expected returns relative to people’s casual intuition based on the relative tax rates for realized and unrealized gains. A tax on unrealized gains is in effect a way of laundering a steep tax rate so that it looks “small” and therefore reasonable to the unsophisticated.
  - cjbgkagh 1y ago
    For many assets, like real estate, there are liquid markets with market prices. There are a number of US states that already tax based on real estate value, you can dispute the assessed value but that impacts other things like insured value. Being difficult to assess value is a problem they’ll make you pay an accountant for and punish you if you get it wrong, it’s not going to stop them.

But you haven't gained... you could be taxed over and over again, and if the stick drops or hits zero then what? It's all on paper and not "real".

by aeonik 1y ago

But you haven't gained... you could be taxed over and over again, and if the stick drops or hits zero then what? It's all on paper and not "real".

lesuorac 1y ago

imo, it's in the best interest of the market for people to have to realize their gains otherwise the price of an item is pretty imaginary if it's never realized.

jandrewrogers 1y ago
Gains are frequently not realizable as a matter of law and/or contract, for good reason. Additionally, there are many assets with notional value conditional on not liquidating them, which makes them de facto not realizable. And of course, the majority of assets have no liquidity, so realizability is a practical fiction. The unrealized values are a fiction. There is significant value in treating values as unknowable when they are, in fact, unknowable. Forcing people to make up a fake valuation creates a lot of adverse incentives.
- dragonwriter 1y ago
  > The unrealized values are a fiction. Then instead of taxing the gains, you'd accept the government nationalizing the assets by eminent domain and paying fair compensation that was significantly less than the "fictional" unrealized value? Or if someone unlawfully deprived you of the asset, you'd accept as restitution or seek as civil damages for the loss something significantly less than the "fictional" value? Or, when it was no longer an excuse to avoid fair taxation, would that "fiction" suddenly be a lot more real to you?
  - sarchertech 1y ago
    It would be much better to tax the benefits of the unrealized gain that a person realizes. It’s much easier to do because there is no disputing the assessment since the person implicitly agrees to the valuation. And it allows people to forgo realizing any benefit from the unrealized value at all to avoid taxation. Say take x% of the top of the money lent to someone who uses their unrealized gain to secure a loan. Make the money paid count against any tax they owe if they sell the asset later.
    - Dylan16807 1y ago
      "uses their unrealized gain to secure a loan" sounds impossible to define with enough precision that you could base taxes off of it.
      - sarchertech 1y ago
        Have you taken out a secured loan in the last year over x amount? Take the value of the asset assessed by the bank and the price paid for the asset to find the total value that is unrealized gain. Divide that by the total value to get percent of collateral that is unrealized gain. Multiply that by the loan value. Then multiply that by the tax percentage. All you need is for banks to report secured loans to the IRS and it’s easy.
        Dylan16807 1y ago
        Secured loans of that form are easy, sure. But if those skyrocket in price from tax, they'll be more subtle about convincing banks they're good for the money and pay a slightly higher rate for unsecured loans. Or maybe they'll just treat the asset securing the loan as having the pre-gains price. Get the bank to agree it's worth at least what you paid, with no further analysis. If you try to plug those loopholes you lose the "much easier to do because there is no disputing the assessment since the person implicitly agrees to the valuation" factor.
        sarchertech 1y ago
        >treat the asset securing the loan as having the pre-gains price That’s no different than if the asset had no unrealized gain at all. >they’ll be more subtle It only takes a small rise in interest rates before it’s cheaper to pay the tax—assuming the tax isn’t outrageous. Unsecured are much riskier because of the way unsecured creditors are treated in bankruptcy, so they already have higher interest rates. It would be very easy to tweak bankruptcy laws to make unsecured loans over a certain amount a bit riskier to increase the delta even more. We also already have regulations governing how banks assess creditworthiness, and the percent of their capital they can lend unsecured based on risk. As well as the amount of unsecured loans they can make to signal individual. If necessary tweak those values. Another easy way is to add a surcharge to large unsecured loans where the loan amount exceeds the taxpayer’s assets based on acquisition price by some large margin. None of those impact implicitly agreeing to the valuation and they are all pretty easy to do.
  - jandrewrogers 1y ago
    You are basically making my case for me. It is widely recognized that replacement value differs materially from notional value. In such cases you may be required to pay much more than notional value because you have to pay for liquidity costs that only exist when transactions are forced to occur. The act of transacting can intrinsically change the asset value, sometimes by a large factor. Are you oblivious to the extensive litigation that occurs in cases like eminent domain because there are substantial differences of opinion on even the notional value, never mind the realizable value? Notional valuations are fiction, everywhere and at all times. Treating them as some kind of objective reality is just enabling a lot of abuse and motivated reasoning.

dragonwriter 1y ago

> But you haven't gained... Yes, you have. You have an asset of greater value which you can leverage in a number of ways without liquidating it and "realizing" the gains. That's a real gain, with real value. > you could be taxed over and over again Only if you make new unrealized gains. > and if the stick drops or hits zero then what? Then you have a negative unrealized gain, or, equivalently, an unrealized loss. If you are taxing unrealized gains instead of taxing gains when realized, then the natural assumption would be, just as is done with taxing gains at realization, that negative unrealized gains are either offset against current income or against future unrealized gains, and so effectively create (considered on their own) negative (current or future) taxes. The simplest form of this is to offset only against future gains, by the simple mechanism that when gains are recognized for tax purposes, they adjust the basis value of the asset, and when unrealized losses occur, they don't effect the basis value at all, so you don't have a taxable unrealized gain again until the market value exceeds the basis value established at the prior peak. More complex versions would allow you to offset some or all of the unrealized loss from the prior basis value against current income of other forms, but the amount of that offset would reduce the basis value of the asset.

jandrewrogers 1y ago
The unrealized value is notional, not actual. This is a very important distinction. The notional value is often not remotely realizable. In many cases, the realizable value can be a tiny fraction of the notional value. Most laypeople grossly conflate notional and real value. Taxing notional value massively inflates the adverse impact of tax incidence on expected returns relative to people’s casual intuition based on the relative tax rates for realized and unrealized gains. A tax on unrealized gains is in effect a way of laundering a steep tax rate so that it looks “small” and therefore reasonable to the unsophisticated.
- cjbgkagh 1y ago
  For many assets, like real estate, there are liquid markets with market prices. There are a number of US states that already tax based on real estate value, you can dispute the assessed value but that impacts other things like insured value. Being difficult to assess value is a problem they’ll make you pay an accountant for and punish you if you get it wrong, it’s not going to stop them.