taxing unrealized gains

[K82]

I have been wondering how long it would take the US to start taxing wealth. I believe it's inevitable and will quickly trickle down to all of us on this forum. I'm sadly confident that this will occur due to our ever increasing national debt and deficit spending. Whatever can't go on forever will eventually end and I see no appetite to get spending under control from either party. Money to keep the Ponzi scheme going will need to come from somewhere. I agree with others that I don't think this current proposal will occur now, but I believe it is coming.

There are currently 7 countries that levy a wealth tax. The amount at which its triggered varies but is as low as around 100K net worth. The tax rate ranges from 0.2% up to 5.25%. This is in addition to income taxes.

"Why do you rob banks?" ...
"Because that's where the money is!"---Willie Sutton, notorious bank robber

[Random1]

A lot of people who have the most means , may have a lot of NW , but most of the NW is tied up in illiquid businesses and real estate. So does some one have to sell part of their business to pay their fair share ?

Trickle down taxes is worse than trickle down economics.

[zlandar]

Eliminating Step up in basis at death would be much more tolerable IMO.

People trying to save for retirement will get smashed by taxing unrealized gains

If your net worth is >$100m I think you are beyond saving for retirement. How many docs are worth $100m?

I don't disagree with your tax creep argument. But the very narrow target of this tax makes all the VHCOL, retirement, upper middle class, etc irrelevant.

[Lithium]

As much as the idea of a “wealth tax” sucks and seems fundamentally unfair, what’s not up for debate is that economic inequality in the US has worsened over the last generation. It’s likely that this is only going to increase with our current policies, even if income tax rates are increased dramatically.

The question is what, if anything, the government should do about it. Despite the inequality, living standards for the general population are always getting better, but people on minimum wage and food stamps aren’t usually satisfied just because they are living with better amenities than their parents and grandparents. All they see is everyone else driving Teslas and buying McMansions with cash. I just worry that if something isn’t implemented in our tax code, the resentment towards the wealthy is only going to build, potentially exacerbating social unrest and even violence. It’s hard to imagine it getting as bad as the French Revolution, but if the national debt starts damaging our credit rating and the strength of the dollar, the wealthy are going to receive more invective from politicians on the cable shows and the campaign debates.

That said, a wealth tax sounds like an accounting nightmare to implement. WCI discussed ten better proposals than a wealth tax in one of his previous blog posts. I’d rather start with taxing realized CG higher, eliminating the step up, or lowering the estate exemption, to name a few.

[Tangler]

If your net worth is >$100m I think you are beyond saving for retirement. How many docs are worth $100m?

I don't disagree with your tax creep argument. But the very narrow target of this tax makes all the VHCOL, retirement, upper middle class, etc irrelevant.

So tell me this:

Are you certain?

Why would they not tax the wealth of people with <100M?

Why would this not expand?

Why are you convinced that this is not just the start?

Why would this be a great idea for people with over 100M but not a good idea for people with _____?

What is the _____= cut off point?

1M? 3M? 5M? 10M? 20M? 50M?

What net worth needs to be punished with a different set of rules?

[Lithium]

The main way tax creep works is with inflation. This is why millions of people got ensnared by the AMT over 50 years. I’ll bet my diploma that the $100M would not be inflation indexed. We’re at 8% inflation now. Suppose it averages 4%. Which means that $100M in 18 years is only $50M today. By the time your kids grow up, it’s only worth $25M.

I know the Federal Reserve is supposed to be quasi independent, but this is obviously one disincentive for the government to rein in inflation.

[Hatton]

France had a wealth tax. 42000 french millionaires left the country. Macron ended it.

[Hank]

The main way tax creep works is with inflation. This is why millions of people got ensnared by the AMT over 50 years. I’ll bet my diploma that the $100M would not be inflation indexed. We’re at 8% inflation now. Suppose it averages 4%. Which means that $100M in 18 years is only $50M today. By the time your kids grow up, it’s only worth $25M.

I know the Federal Reserve is supposed to be quasi independent, but this is obviously one disincentive for the government to rein in inflation.

There’s very little argument that $100 million net worth isn’t wealthy. But calling this a “billionaires’ tax” is dishonest when it starts at one-tenth that net worth. Moreover, if your goal is to increase revenue to the federal government, then there’s more money to be had by lowering the threshold to $50M, $20M, and $10M net worth. Of course the threshold won’t be subject to inflation adjustment.

Just like a maximum of 7% federal income tax starting at $14.5 million in 2022 dollars back in 1913, or the handful of families subject to the AMT in the late 1960’s, it’s unlikely this proposed new tax would stay limited to the 5,000 (families, taxpayers?) who allegedly would be subject to it.

{Heck, if your goal is to get more tax revenue upfront today, why get rid of Roth conversions and recharacterizations?}

[Kamban]

I will probably never have 100 million. And I see that there are about 5000 people in the US with that much wealth. But this is silly.

The number of people with NW > 100M was 55,000 people in 2013 and I bet I has more than doubled in the past decade.

https://en.wikipedia.org/wiki/Ultra_high-net-worth_individual

[Tim]

Just a note on the messaging: The original political message was "billionaires" need to pay their "fair share". Somehow that morphed into $100m of assets.
This demonstrates that the adopting of the tax basis of assets by the political process is a very slippery slop when adopting a new basis of tax policy.
SECURE 2.0 is coming up.

https://finance.yahoo.com/news/retirement-reform-is-set-for-a-key-vote-on-capitol-hill-this-week-212156910.html

Of course this is supported by the insurance industry. Another example of the slipper slope.
Fair is defined by "special interests" which will benefit from changes. One can say it is needed change and one can say it throws uncertainty up to the whims of special interests.

[Dusn]

I agree that this plan is not feasible.

I don’t agree with the idea that the wealthy already pay too much in taxes, however.

Right now our tax system penalizes work (income) but making money through investments (capital gains) is taxed at a lower rate than income. This tax can be avoided by borrowing against that wealth or deducting depreciating assets. Inheriting money may remove that tax altogether with the step-up-in-basis.

The key to getting out of the cycle of working is to earn or borrow enough that you can invest a sizable amount and let that money work for you. If you can’t do that then you’re stuck living paycheck to paycheck.

My problem with taxing based on wealth is that I haven’t heard anyone describe a good way to do it, not because I think that there’s anything morally wrong with it.

[Kamban]

France had a wealth tax. 42000 french millionaires left the country. Macron ended it.

From what I read, they changed it to a real estate tax on the value of the property. They could move paper assets abroad easily but they may be forced to sell if they have to change real estate. I am not sure if this tax is really worth it.

[Kamban]

The main way tax creep works is with inflation. This is why millions of people got ensnared by the AMT over 50 years. I’ll bet my diploma that the $100M would not be inflation indexed. We’re at 8% inflation now. Suppose it averages 4%. Which means that $100M in 18 years is only $50M today. By the time your kids grow up, it’s only worth $25M.

I know the Federal Reserve is supposed to be quasi independent, but this is obviously one disincentive for the government to rein in inflation.

Norway has a wealth tax for just $180K single/ 360K married couple. Are these amounts really wealth?

[Tangler]

Dusn You say: "I don’t agree with the idea that the wealthy already pay too much in taxes, however."

Define Wealthy for me? Does this include yourself?

Seems to me that many define "wealthy" as people who have more than me.

Interesting how just taking those peoples wealth seems reasonable to a large group of our society.

[Kamban]

The best way to collect revenue is to eliminate step up basis.

On top of it if you force wealthy to pay a top tier income tax rate instead of LTCG of the assets when they die before it can be passed on to their heirs, the wealthy would rather sell while they were living and pay the smaller LTCG. This will help steady stream of tax revenue year after year.

Make hedge fund owners pay for their income as income tax rather than LTCG. Might not get much but will be fair to all income tax payees.