6 ms·

If your brokerage account is large enough that most of your change-in-net-worth happens in unrealized capital gains, your tax rate is 0%. That's pathological at

If your brokerage account is large enough that most of your change-in-net-worth happens in unrealized capital gains, your tax rate is 0%. That's pathological at the best of times and in a "capital wins" scenario it's positively thermonuclear.

JoeAltmaier 11mo ago
Folks like to hate on capital gains tax. I think it's perceived as a rich-person deal. But homeowners, do they get taxed each year on the increase in value of their house? Almost the same thing, but not hated on the same way.
- smallmancontrov 11mo ago
  Homeowners get taxed every year on the value of their property. Let's do that to stocks, too.
  - immibis 11mo ago
    I think both stocks and homes should be taxed on realized value. If you sell it, that realizes the value, but also if you use it as collateral, that realizes the value. If you just live in it, we could say that it realizes the amount of rent you would have paid, or that it realizes nothing.
    - smallmancontrov 11mo ago
      No, the exponential runaway of "rich people get paid for being rich in proportion to how rich they are" is the core problem and focusing on the derivative is a magic trick intended primarily to draw attention away from the core problem. The fact that an earned derivative gets heavily taxed and an unearned derivative gets lightly taxed is so stupendously wacky that the absurdity is obvious, but the integral is the core problem.
      - phil21 11mo ago
        If you mean the difference between the top line capital gains vs income tax rates, I generally agree but also understand the math does not. You could reset realized long term capital gains taxes to match income tomorrow and it would not be a huge material difference in the budget. I am 100% for doing this anyways simply because it’s fucking absurd any professional W2 employee is paying more percentage in taxes vs someone who just happens to have idle cash at hand - but it’s more of a “social contract” thing for me than actual tax policy. The issue really is tax deferral strategies and wealthy folks being able to consistently find strategies to roll over investment dollars into new investments without ever having their gains be subject to pretty much any tax. Stuff like stock buybacks, tax loss harvesting, 1031 exchanges etc. I don’t think the “loans against a stock portfolio” tax dodge thing is nearly as large as social media decided to pretend it is - but I am very much in favor of taxing any realized value at regular capital gains rates at the time of realization. This means you will probably need to sell a bit of an asset to pay the taxes - which is the entire point. Unrealized gains are tricky. I’ve been in a situation as a bootstrapped startup founder where I owed “phantom” tax on money I had not yet realized and ended up taking a loss on years later. Zero ability to recover those taxes paid. It put me into a hole for over half a decade. This gives huge preference to those with existing wealth and makes it even harder for someone with nothing to “come up” without handing out a majority share of their company/idea to idle capital. Especially if you’re just doing regular economy things to create a small business doing boring stuff at single digit net margins.
        smallmancontrov 11mo ago
        The common theme behind the avoidance mechanisms is "keeping the gain unrealized." Going after preferential treatment of unrealized gains categorically attacks every single one of these tricks. It nukes the hydra rather than trying to chop off heads one at a time. I am of course deeply sympathetic to the "founder scenario," but I'd rather address it specifically than hobble tax collection generally. This could be done by a "payment in-kind" mechanism. If we wanted to steer it towards startups I'm sure the valuation rules could be set to do so, but I'd personally like to aim higher and go for progressive taxation on the basis of market cap to encourage company splitting and competition. Industries with the most dramatic returns-to-scale (semiconductors) could be exempted. That said, the (in)ability for new founders to self-fund is deeply tied to the same gini coefficient story as the rest of the economy, so policy that addresses the gini story should help bootstrappers as well.
    - pyrolistical 11mo ago
      This makes the most sense. The trick is to tax all realized value. I’m happy for billionaires have their net worth go up, as long as it can be taxed if any amount they realize. So this includes using their networth as collateral, donations (even to charities) and passing as inheritance (which should be taxed upon death) And if the margin all tax rate over a 1 million is extremely high, then it’s pointless being a paper billionaire. People would actually spend their wealth and contribute to the economy
  - andsoitis 11mo ago
    > Homeowners get taxed every year on the value of their property By the local municipality, not the federal or state government.
    - hrimfaxi 11mo ago
      Is that a big distinction? Is there anything limiting the states from preempting municipalities and levying at the state level?
    - giaour 11mo ago
      Huh, I could have sworn the goalposts were over here in the "tax it" debate, not the "ensure it is taxed by a specific entity" debate.
      - andsoitis 11mo ago
        There’s a certain amount of independence between municipalities, counties, states, and the federal government. Except in a minority of cases (e.g. NYC), it is states and the federal government that taxes income and capital gains, and they are already not taxing citizens on the y realized value of their home. So if one is upset about that, you have to take it up with local elections or introduce a measure with your state to prevent municipalities from levying this specific tax.
        galaxyLogic 11mo ago
        Yes the idea of property taxes is NOT to tax based on increase in wealth, just the current amount of wealth. And it serves a good purpose in municipalities who have to make sure infrastructure such as roads power and sewage systems are paid somehow. More expensive houses typically require more of those.
        giaour 11mo ago
        I don't know what point you're trying to make. Are you saying that wealth should be taxed but only at the county/municipal level? Or are you saying wealth can't be taxed because of federalism?
  - AnthonyMouse 11mo ago
    > Homeowners get taxed every year on the value of their property. Let's do that to stocks, too. Property tax is fairly regressive because everyone needs somewhere to live, property tax gets passed on as higher rents and living space generally scales sub-linearly with income. It's probably not something we should be emulating, especially if you're going to try to apply the same rules to small business owners.
- giaour 11mo ago
  Yes, I pay property taxes every year that are based on the current assessed values of my home and car. Only special classes of assets are subject to property taxes. "Wealth tax" proposals are a generalization of the idea of real property taxes so as to stop penalizing specific asset classes like homes.
  - bombcar 11mo ago
    If you dig into how property tax is allocated, your tax will only go up if your house appreciates more than similar properties - which usually has something like redevelopment or other externality. It is normally not a fixed percentage of your value, but simply "here's what the county/city paid this/next year, divided amongst the properties proportionate to the value." Some, like sewer, etc, are per-property, but most are done via the above. California is an outlier because of Prop-13 but that makes it usually better except when buying. Side-effects of this can mean that development in your district can reduce your tax rate, depending on what kind of development and who lives there (as property tax is often mainly a school tax, a development for 55+ will bring in more tax payers but not increase the school burden noticeably).
    - orangecat 11mo ago
      Right. Property taxes are a combination of fee-for-service for infrastructure, and a "congestion tax" for occupying land that nobody else can use. It's explicitly not a wealth tax because you owe it even if you have 0% equity.
      - giaour 11mo ago
        You owe tax based on your percentage of ownership. The taxing authority doesn't care about equity because you own 100% of your house (albeit with a lien) even if your outstanding mortgage obligations exceed the value of the house. Generally, when you close on a house in the US, you walk away with the title to the house and a mortgage equal to a large percentage of the house's value. The bank only owes property taxes if they foreclose on the property and take the title from you.
    - 11mo ago
- JKCalhoun 11mo ago
  You live in a house. Secondary residences however are not tax deductible?
  - deleted 11mo ago
    [deleted]
- insane_dreamer 11mo ago
  yes, we do. it's called a property tax, and it goes up based on market value regardless of whether you sold the property or not. it is absolutely a tax on unrealized gains and it's a huge problem to where people who bought the house long ago (or it was passed down to them) but whose income hasn't kept pace (like many people's) can't afford the increased property taxes anymore and have to move
  - JoeAltmaier 10mo ago
    Sure, but recalculated every few years, not every day or even every year?
- bluecheese452 11mo ago
  Yes? Their property tax goes up.
thesmtsolver2 11mo ago
By that logic, you should also consider what happens if the brokerage account goes negative. Are you willing to do that?
- JKCalhoun 11mo ago
  That's an easy decision to make since almost no one's brokerage account has gone negative in almost forever. (Mine sure hasn't and I know nothing about stock investing except to buy index funds.)

JoeAltmaier 11mo ago

Folks like to hate on capital gains tax. I think it's perceived as a rich-person deal. But homeowners, do they get taxed each year on the increase in value of their house? Almost the same thing, but not hated on the same way.

smallmancontrov 11mo ago
Homeowners get taxed every year on the value of their property. Let's do that to stocks, too.
- immibis 11mo ago
  I think both stocks and homes should be taxed on realized value. If you sell it, that realizes the value, but also if you use it as collateral, that realizes the value. If you just live in it, we could say that it realizes the amount of rent you would have paid, or that it realizes nothing.
  - smallmancontrov 11mo ago
    No, the exponential runaway of "rich people get paid for being rich in proportion to how rich they are" is the core problem and focusing on the derivative is a magic trick intended primarily to draw attention away from the core problem. The fact that an earned derivative gets heavily taxed and an unearned derivative gets lightly taxed is so stupendously wacky that the absurdity is obvious, but the integral is the core problem.
    - phil21 11mo ago
      If you mean the difference between the top line capital gains vs income tax rates, I generally agree but also understand the math does not. You could reset realized long term capital gains taxes to match income tomorrow and it would not be a huge material difference in the budget. I am 100% for doing this anyways simply because it’s fucking absurd any professional W2 employee is paying more percentage in taxes vs someone who just happens to have idle cash at hand - but it’s more of a “social contract” thing for me than actual tax policy. The issue really is tax deferral strategies and wealthy folks being able to consistently find strategies to roll over investment dollars into new investments without ever having their gains be subject to pretty much any tax. Stuff like stock buybacks, tax loss harvesting, 1031 exchanges etc. I don’t think the “loans against a stock portfolio” tax dodge thing is nearly as large as social media decided to pretend it is - but I am very much in favor of taxing any realized value at regular capital gains rates at the time of realization. This means you will probably need to sell a bit of an asset to pay the taxes - which is the entire point. Unrealized gains are tricky. I’ve been in a situation as a bootstrapped startup founder where I owed “phantom” tax on money I had not yet realized and ended up taking a loss on years later. Zero ability to recover those taxes paid. It put me into a hole for over half a decade. This gives huge preference to those with existing wealth and makes it even harder for someone with nothing to “come up” without handing out a majority share of their company/idea to idle capital. Especially if you’re just doing regular economy things to create a small business doing boring stuff at single digit net margins.
      - smallmancontrov 11mo ago
        The common theme behind the avoidance mechanisms is "keeping the gain unrealized." Going after preferential treatment of unrealized gains categorically attacks every single one of these tricks. It nukes the hydra rather than trying to chop off heads one at a time. I am of course deeply sympathetic to the "founder scenario," but I'd rather address it specifically than hobble tax collection generally. This could be done by a "payment in-kind" mechanism. If we wanted to steer it towards startups I'm sure the valuation rules could be set to do so, but I'd personally like to aim higher and go for progressive taxation on the basis of market cap to encourage company splitting and competition. Industries with the most dramatic returns-to-scale (semiconductors) could be exempted. That said, the (in)ability for new founders to self-fund is deeply tied to the same gini coefficient story as the rest of the economy, so policy that addresses the gini story should help bootstrappers as well.
  - pyrolistical 11mo ago
    This makes the most sense. The trick is to tax all realized value. I’m happy for billionaires have their net worth go up, as long as it can be taxed if any amount they realize. So this includes using their networth as collateral, donations (even to charities) and passing as inheritance (which should be taxed upon death) And if the margin all tax rate over a 1 million is extremely high, then it’s pointless being a paper billionaire. People would actually spend their wealth and contribute to the economy
- andsoitis 11mo ago
  > Homeowners get taxed every year on the value of their property By the local municipality, not the federal or state government.
  - hrimfaxi 11mo ago
    Is that a big distinction? Is there anything limiting the states from preempting municipalities and levying at the state level?
  - giaour 11mo ago
    Huh, I could have sworn the goalposts were over here in the "tax it" debate, not the "ensure it is taxed by a specific entity" debate.
    - andsoitis 11mo ago
      There’s a certain amount of independence between municipalities, counties, states, and the federal government. Except in a minority of cases (e.g. NYC), it is states and the federal government that taxes income and capital gains, and they are already not taxing citizens on the y realized value of their home. So if one is upset about that, you have to take it up with local elections or introduce a measure with your state to prevent municipalities from levying this specific tax.
      - galaxyLogic 11mo ago
        Yes the idea of property taxes is NOT to tax based on increase in wealth, just the current amount of wealth. And it serves a good purpose in municipalities who have to make sure infrastructure such as roads power and sewage systems are paid somehow. More expensive houses typically require more of those.
      - giaour 11mo ago
        I don't know what point you're trying to make. Are you saying that wealth should be taxed but only at the county/municipal level? Or are you saying wealth can't be taxed because of federalism?
- AnthonyMouse 11mo ago
  > Homeowners get taxed every year on the value of their property. Let's do that to stocks, too. Property tax is fairly regressive because everyone needs somewhere to live, property tax gets passed on as higher rents and living space generally scales sub-linearly with income. It's probably not something we should be emulating, especially if you're going to try to apply the same rules to small business owners.
giaour 11mo ago
Yes, I pay property taxes every year that are based on the current assessed values of my home and car. Only special classes of assets are subject to property taxes. "Wealth tax" proposals are a generalization of the idea of real property taxes so as to stop penalizing specific asset classes like homes.
- bombcar 11mo ago
  If you dig into how property tax is allocated, your tax will only go up if your house appreciates more than similar properties - which usually has something like redevelopment or other externality. It is normally not a fixed percentage of your value, but simply "here's what the county/city paid this/next year, divided amongst the properties proportionate to the value." Some, like sewer, etc, are per-property, but most are done via the above. California is an outlier because of Prop-13 but that makes it usually better except when buying. Side-effects of this can mean that development in your district can reduce your tax rate, depending on what kind of development and who lives there (as property tax is often mainly a school tax, a development for 55+ will bring in more tax payers but not increase the school burden noticeably).
  - orangecat 11mo ago
    Right. Property taxes are a combination of fee-for-service for infrastructure, and a "congestion tax" for occupying land that nobody else can use. It's explicitly not a wealth tax because you owe it even if you have 0% equity.
    - giaour 11mo ago
      You owe tax based on your percentage of ownership. The taxing authority doesn't care about equity because you own 100% of your house (albeit with a lien) even if your outstanding mortgage obligations exceed the value of the house. Generally, when you close on a house in the US, you walk away with the title to the house and a mortgage equal to a large percentage of the house's value. The bank only owes property taxes if they foreclose on the property and take the title from you.
  - 11mo ago
JKCalhoun 11mo ago
You live in a house. Secondary residences however are not tax deductible?
- deleted 11mo ago
  [deleted]
insane_dreamer 11mo ago
yes, we do. it's called a property tax, and it goes up based on market value regardless of whether you sold the property or not. it is absolutely a tax on unrealized gains and it's a huge problem to where people who bought the house long ago (or it was passed down to them) but whose income hasn't kept pace (like many people's) can't afford the increased property taxes anymore and have to move
- JoeAltmaier 10mo ago
  Sure, but recalculated every few years, not every day or even every year?
bluecheese452 11mo ago
Yes? Their property tax goes up.

thesmtsolver2 11mo ago

By that logic, you should also consider what happens if the brokerage account goes negative. Are you willing to do that?

JKCalhoun 11mo ago
That's an easy decision to make since almost no one's brokerage account has gone negative in almost forever. (Mine sure hasn't and I know nothing about stock investing except to buy index funds.)