taxing unrealized gains

[Dusn]

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.

I define it as money made off of investments (“wealth”) rather than direct work-related income. And this can be increased in a graduated manner based on amount of wealth just like taxed on income are. “Wealth” may not be the best term.

I’d definitely be against taxing the basis. Taxing the income generated by that wealth however is fair game IMO. And closing loopholes like the step up in basis would be preferred.

[Hatton]

I define it as money made off of investments (“wealth”) rather than direct work-related income. And this can be increased in a graduated manner based on amount of wealth just like taxed on income are. “Wealth” may not be the best term.

I’d definitely be against taxing the basis. Taxing the income generated by that wealth however is fair game IMO. And closing loopholes like the step up in basis would be preferred.

I could not disagree more. I feel like I paid taxes on the money as I earned it by working. I could of just spent every cent but I saved and invested. So I really resent paying taxes on investment income. An argument can be made about inherited wealth since it is not earned. I think many folks work hard to leave their kids something so there it is. I have no problem with taxing carried interest as income.

[Tangler]

I define it as money made off of investments (“wealth”) rather than direct work-related income. And this can be increased in a graduated manner based on amount of wealth just like taxed on income are. “Wealth” may not be the best term.

I’d definitely be against taxing the basis. Taxing the income generated by that wealth however is fair game IMO. And closing loopholes like the step up in basis would be preferred.

So tax the heck out of all investment income?

Will that encourage saving?

Will that hurt the retired community?

My opinion changed with age. My guess is many people (after paying millions in income taxes over the years) feel like they have paid enough by the time they hang up the white coat.

My investment income is mostly in my taxable & Roth accounts. I paid taxes already once on this $.

Now I suppose I should pay more?

[VentAlarm]

I wonder two things:

1. your age (less than 50?)

2. If your opinion will change after you have taken countless calls & shifts to build up some investments in a nest egg.

People often feel different as they go from age 30 vs say age 60.

At 70 people often feel they have already paid income tax on their income and their savings shouldn’t be hammered by the tax man.

My opinion changed with age. My guess is many people (after paying millions in income taxes over the years) feel like they have paid enough.

I don’t know what enough is, but I know I pay more than my fair share.

[Dusn]

I could not disagree more. I feel like I paid taxes on the money as I earned it by working. I could of just spent every cent but I saved and invested. So I really resent paying taxes on investment income. An argument can be made about inherited wealth since it is not earned. I think many folks work hard to leave their kids something so there it is. I have no problem with taxing carried interest as income.

I think everyone on this forum would agree with you on a personal level. Capital gains taxes are totally against my self-interest.

But many billionaires make nearly all their money off of capital gains and the idea that they should have a tax rate of nearly zero percent just because they get paid through stocks that they then offset with depreciating assets or borrow against doesn’t make sense either. This is the point of a graduated capital gains tax based on “wealth” - of course it won’t work though.

At the end of the day this is just an academic discussion though. The chance that the govt is going to outsmart the billionaires and make them actually
pay taxes is zero.

[Kamban]

I think everyone on this forum would agree with you on a personal level. Capital gains taxes are totally against my self-interest.

But many billionaires make nearly all their money off of capital gains and the idea that they should have a tax rate of nearly zero percent just because they get paid through stocks that they then offset with depreciating assets or borrow against doesn’t make sense either. This is the point of a graduated capital gains tax based on “wealth” - of course it won’t work though.

At the end of the day this is just an academic discussion though. The chance that the govt is going to outsmart the billionaires and make them actually
pay taxes is zero.

I am partly with you and partly with Hatton . Our earnings on investment income is minor in the grand scheme of things and should be taxed as LTCG.

Of course the basis should not be taxed since one has already paid taxes on it. My basis might be $2M and it it makes $4M I pay LTCG on the $2M earned.

Musk's basis is close to zero. If he sells any TSLA stock he should pay 20% or whatever is the highest LTCG, on the stock sold. But should he choose to be greedy and die his heirs don't get any step up and after that 10 or 20M estate tax-free amount they pay estate taxes of 40-45% before they get their money. So there is that money that goes to IRS. Better to sell when you are alive than when you die.

And the rich cannot escape by giving it all away to charity and leave the others to pay those pesky taxes. You owe the government first before you give charity. Sorry, taxes have to be paid by all of us who live in USA. Gates and Buffett cannot give it to their favorite charities and make the rest of the us bear the tax burden.

[G]

A consumption tax would seem to fix all/most of the issues I've seen in this thread. Even if Elon Musk is a cheapskate, his wealth will eventually be spent, and therefore taxed.

[Hatton]

I would be fine with a consumption tax if income tax was eliminated

[Panscan]

is just totally impossible and a frank non-starter.

this is equivalent to talking about pigs flying. the logistics and complexity of implementing would be leagues beyond anything the IRS does now.

What we need to do is reduce the amount of deductions or perhaps phase them out for higher incomes more frequently. Prevent people from deferring income, particularly equity based compensation.

[CordMcNally]

A consumption tax that isn't levied on basics (food, clothing, etc. but not 5 star Michelin restaurants, Gucci, etc.) would seem to make a lot of sense.

[spiritrider]

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

Like much of what Congress does these days, budget gimmicks.

The immediate elimination of Roth conversions in the BBB Act was only a prohibition on conversions of non-deductible basis in traditional IRAs and employee after-tax contributions in non-IRA employer plans. No revenue gain there, but continuing to allow taxable conversions for 10 years gets counted in the required 10-year budget projections.

10-year "pay for" was a significant reason for the elimination of lifetime RMDs for non-spouse beneficiaries in the SECURE Act. It was also the driving force for the elimination of the Roth conversion income limit in 2010. Near-term revenue gain at the expense of future revenue. Congress will always take that short-sighted path.

I have it on firm IRS and congressional sources that the elimination of Roth conversion recharacterizations were because of thousands of people (and increasing every year) using the Roth Horserace strategy.

For those who are not familiar with the term. This was where you split your traditional IRA assets into several accounts and did several Roth conversions to different Roth IRAs. Then you invested each Roth IRAs assets into a different asset class or even made all or nothing investments in individual stocks.

You kept your biggest gains and recharacterized your lower returns and losses back into IRA accounts. Rinse and Repeat. Recharacterizations were intend for an OOPs. A common use was for the uninitiated doing a Backdoor Roth early in the year and then rolling over a 401k to a traditional IRA.

We used to be able to tell them how to use a Roth conversion "do over." Well, no more, because of the minor greedy abusers of a valuable tool.

[Hank]

Personally, I thought the Roth Horserace approach was overkill. I preferred to over-convert by $20K to $30K, then recharacterize to top out a given tax bracket or avoid an all or nothing phase out of a given credit. It let me be more aggressive with taxable Roth conversions of existing traditional accounts, while not getting walloped by $10 extra in taxable income causing $1800 in additional tax liability. (Yes, that actually would have happened to us if we hadn't been able to recharacterize one year.)

[Tim]

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.

Remember, cause of death is not a factor in tax collections. One could always regulate when death is required. Just think of the possibilities for accelerating tax revenues.

[Kamban]

Remember, cause of death is not a factor in tax collections. One could always regulate when death is required. Just think of the possibilities for accelerating tax revenues.

By a strange twist, one could argue that George Steinbrenner, owner of the NY Yankees timed his death perfectly. The Fed estate taxes were being slowly reduced and in 2010 it was zero and the next year it rose back to 55%. By making sure he died ( or was made to die like another recent Ep incident ) his heirs did not have to pay a $600M tax bill. Convenient or lucky?

https://www.forbes.com/2010/07/20/yankees-estate-tax-intelligent-investing-steinbrenner.html?sh=3f05463a180e

[Tim]

By a strange twist, one could argue that George Steinbrenner, owner of the NY Yankees timed his death perfectly. The Fed estate taxes were being slowly reduced and in 2010 it was zero and the next year it rose back to 55%. By making sure he died ( or was made to die like another recent Ep incident ) his heirs did not have to pay a $600M tax bill. Convenient or lucky?

https://www.forbes.com/2010/07/20/ya...h=3f05463a180e

Funny thing how we identify with chance occurrences . From first to fifth grade I live one house away from George's house in Bay Village Ohio. Didn't own the Yankee's yet but owned a hockey team and basketball team. His kids were "playmates". Got to shoot basketballs and throw footballs with "famous athletes".

Actually sent condolences to the wife and Hank. Probably false identification. Probably the smartest money deal he ever made. Can't take credit for his planning.