taxing unrealized gains

[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.

[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.

[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?

[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.

[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.

[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.

[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 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?

[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.

[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.

[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.

[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

[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?}

[Hatton]

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

[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.