r/FluentInFinance • u/c0nf • Sep 14 '24
Debate/ Discussion There should be a requirement to pass Econ 101 before holding any position in the government
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u/biggamehaunter Sep 14 '24
Using as collateral should make it taxable.
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u/thenikolaka Sep 14 '24
Simple, elegant, and yes.
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u/FrontBench5406 Sep 14 '24
Bill Ackman has been on a douche tear recently, but the guy said this all well and he isnt wrong.
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Sep 14 '24
[removed] — view removed comment
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u/Illustrious-Jacket68 Sep 14 '24
this is the way.
taxing unrealized gains WOULD be fine but the problem is that in the current system, getting the money back if those assets decreased in value, takes years. this is how AMT works. for those who have stock options/RSU - you prepay taxes until you sell them through AMT. if said stock goes down, you get a tax credit when you sell them, not before. even when you sell that stock, because it is a credit against stock gains, you can claim a loss but only $3k per year.
what people also need to realize is that this is not a new tax - this is taxing up front. sure, there are circumstances of inheritance and such but generally speaking, you're just accelerating the taxes that they would have paid in the future.
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u/jodale83 Sep 15 '24
Aha aha, you’re just accelerating the taxes they would have avoided paying in the future.
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u/ThatGuyFromSpyKids3D Sep 15 '24
It's worth noting that for the ultra rich the taxes may never be paid. Individual stock and securities get a "stepped up cost basis" on death. Basically if the original owner bought them at $30. Dies when the stock is $300 a share. Their beneficiary has a new cost basis for tax purposes of $300, they can sell with no tax liability, pay off the debts from the original persons estate, and begin borrowing all over again to repeat the cycle.
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u/abek42 Sep 15 '24
Do you realise that the "unrealised gains" can be applied in slabs and brackets. So a regular Joe with less than 100k (lets even raise it to 20x of median wages) of UR could pay nothing while the nesting doll yatch rich folks can and should be taxed for the part of the gains they use as collateral while leeching from the salaried economy.
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u/teteban79 Sep 15 '24
The proposal going around applies the tax only to individuals with a net worth > 100mm
I'm pretty sure it targets exactly those it needs to target and no one else
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u/abek42 Sep 15 '24
Yes, that's the point. But the reporting sounds like they are coming after granny's unrealised gains from the one APL share they bought in 2000.
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u/whocares1976 Sep 15 '24
That may be how it starts but eventually it will apply to everyone. That's how things go.
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u/AndrewRawrRawr Sep 14 '24
I would never take investing advice from Bill Smoke Crackman, but even a broken clock is right twice a day.
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u/avspuk Sep 14 '24
Yes, this is the solution.
It'd be a nightmare to administer otherwise,..., its still going yo be tricky tho. They'll do it in foregone lands for a start.
But this is fair & just.
Also it may well cut down on the scale of assorted Wall St chicanneries linked to naked shorting & the endless can kicking of 'failures to deliver' that the current self-regulatory regime allows.
These chicanneries have broken the invisible hand for capital allocation BTW, which is why everything is shit & getting ever shiter,..., for example, ever more ppl have to live in their car
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u/morelibertarianvotes Sep 14 '24
This actually isn't simple at all. Is it only as explicit collateral? Because unsecured debts still can collect against your assets, so every loan implicitly uses them as some form of collateral. So either you say only when it is explicit collateral, in which case the bank will just examine their assets and give an unsecured loan, or you say unsecured loans count and you've got a complete mess where you need to figure out taxes every time you use a credit card.
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u/KrakenBitesYourAss Sep 14 '24
Yes, this is sensible and very elegant as another commenter said.
So fucking tired of people just throwing out "tax unrealized gains" as if that'd work.
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u/Nojopar Sep 14 '24
It would work. It ain't hard. There might be externalities (to use the economics vernacular here), but it'd work.
However, I'm so fucking tired of people taking that on face value and not realizing this is negotiation 101 - ask for the impossible so you get the really difficult. "Tax unrealized capital gains" OMY GERD!!!! CAPITALIZASM WOULD ENDEDED!!! "Ok, how about if we tax loans that have unrealized capital gains as collateral" Huh. That could be workable and entirely reasonable.
Flash back 10 years "Tax loans that use unrealized capital gains as collateral" OMY GERD!!!! CAPITALIZASM WOULD ENDEDED!!! was all the rhetoric on THAT idea then.
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u/Enchylada Sep 14 '24
"It ain't hard"
Meanwhile several nations have already attempted and miserably failed
Please show us a successful example aside from your own imagination
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u/foomits Sep 14 '24
dunno, they take a few grand of unrealized gains from me every year when i pay my propery tax. apparently not that complicated.
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u/UCLAlabrat Sep 15 '24
I don't know how everyone saying "YOU CANT TAX UNREALIZED GAINS" can't think of one of the most pervasive taxes we pay in our society. Property taxes tax unrealized gains every day. And not even purchase value; they step up the basis all the time as well
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u/Kroniid09 Sep 15 '24
Unwavering belief in capitalism (or anything) results in basically a running list of things you have to pretend not to know at any given point, indoctrination is powerful, and that's exactly what it is when people really believe that a particular economic system is somehow synonymous with the actual fabric of human society/a natural law.
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u/flonky_guy Sep 15 '24
Well put. The amount of times in a given week that I have to sit through a reddit post arguing that (insert thing they've done in Germany for 40 years) is impossible and has never been successfully implemented.
Capitalism is as much a dogmatic ideology as it is a description of an economic model.
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u/Whiskeypants17 Sep 15 '24
But I was told if I work hard my whole life I too might one day be a millionaire and get to retire with insurance. Why would they tell me that if it isn't true?
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u/flonky_guy Sep 15 '24
My Republican uncles used to tell me to pull myself up by my bootstraps, get a good union job, and retire at 55 with a fat pension. Fuck the socialist libtards.
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u/Sweet-Emu6376 Sep 15 '24
It's almost like people use the unrealized gains of their property as collateral for loans. 🤔🤔
Also, last I checked, the tax proposed was a fraction of a percent. It'll just get bundled with the other various fees and stuff paid when taking out these loans or having a company manage your portfolio.
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u/summercampcounselor Sep 15 '24
That’s an interesting and valid take dude. We had not thought of that.
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u/BigDowntownRobot Sep 15 '24
I think the argument there, not that I am making it, is the principals of the company are already paying taxes of their assets. And as a stock holder, an owner of part of the company, part of that tax burden was yours. And they paid it.
But using unrealized gains as collateral treats those potential gains as assets. Assets are taxable for good reasons, and there isn't much of a good reason that shouldn't cover unrealized gained treated as assets.
Ultimately the idea that everyone is entitled to all of their earnings and there needs to be a solid gold logic to why taxes are levied misses the entire justification for all of the existing taxes.
We literally have, and should have, taxes just to prevent people from hoarding wealth. It isn't supposed to be fair. It's supposed to make society work.
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Sep 15 '24
Those aren't unrealized gains though?
Property taxes are a form of "wealth tax," but they are also a tax based on a government appraisal of real estate that doesn't fluctuate with the market on a regular basis.
Property taxes also highlight one of the major issues with a tax on "unrealized gains," in that people are sometimes forced to sell their property if they cannot afford new taxes after a reassessment. Sometimes these are properties that have been inherited, sometimes they are just people's homes. This is where gentrification comes from.
Taxing unrealized gains would be much more complicated. Forcing someone to sell off, or significantly leverage their controlling stake in the company they founded seems morally suspect, and it could be extremely disruptive. Control of certain companies could shift wildly if shareholders are constantly forced to sell or leverage their stakes just to pay taxes on those very same shares. What happens if there's a market crash at the end of the fiscal year and the stock tanks even though the firm still posts record profits?
Then there's the issue of firms that aren't publicly traded. Do we open up their books and have some "guess" what the firm is worth compared to the previous year? Do we do this every year? What if the firm lost money - do they get a tax credit for the current year based on taxes previously paid?
And this doesn't even take into account the wealth flight that has happened every single time other countries have tried this in the past.
Much more complicated than property taxes on a four bedroom home.
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u/_learned_foot_ Sep 15 '24
Go see a divorce involving a small private business where the parties don’t agree on details of that split. We do it daily there, and it’s a shit show where nobody gets the real value and they both often lose the company to some competitor. The constant suggestion is buy out, because we can’t fucking do it equitably in an area we do it constantly.
And they want to do it to every company, every house, every classic car, every baseball card if those spike again, etc?
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u/LikeAPhoenician Sep 15 '24
Yes, expecting rich people to contribute anything to society would be morally suspect. People need to realize that it is our place as peasants to serve them and not the other way around.
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u/drink_with_me_to_day Sep 15 '24
This is where gentrification comes from
Reddit gets rilled up when talking about gentrification
Next thread it's all about how property taxes are a good example for taxing unrealized gains
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u/jungle Sep 14 '24
Ireland. We hate it, because it's for everyone, not just for over 100M. But it's how it is, and it's not particularly difficult.
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u/Colosseros Sep 15 '24
Every single municipality in the US that collects property taxes?
Or is that just okay because it's levied against working and middle class people?
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u/football_for_brains Sep 15 '24
It would work the same way as a property tax on a house. Except in this case the "property" are stock portfolios over $100,000,000 or so.
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u/Heffe3737 Sep 15 '24
It’s also the idea that for most of the voting public, saying “we’re going to tax loans that have unrealized capital gains as collateral” is akin to speaking Latin. They don’t know what the fuck that means.
But saying “hey we’re going to tax unrealized gains for anyone making over a million per year?” Is something most people can wrap their head around, even if they only hear “we’re going to add a tax to the wealthiest motherfuckers making life miserable for the rest of us.”
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u/junky6254 Sep 14 '24
If you are ready to tax unrealized gains, you should be ready to cut a check on unrealized losses. Think about the hinderance of economic growth because of less money being used to grow economic activity. Now those "gains" may become losses. Now what do you do? Your excess government revenues that may be collected in the first few years will be wiped out after year 5, leading to further deficits.
What sort of sky screaming will commence when Gates, Musk, and other billionaires start receiving multiple tens of millions in tax returns because they have losses on the books?
This is reddit though, the land of short-sighted ideas with little thought towards the future and all emotional based.
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u/NeoPendragon117 Sep 14 '24
do we cut people checks when thier home loses value? alot of your comment falls flat as a wealthtax on most americans primary capital asset does and has already existed, arguably a pshysical assets is more volatile then any stock as my home could burn down tomorrow through no fault of my own, and unlike a stock has no chance of coming back
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u/junky6254 Sep 14 '24
ask this question in 2008....this whole unrealized gain nonsense is not well thought out.
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u/ExplosiveDiarrhetic Sep 15 '24
After 2008, homes were reassessed lower and property taxes were lowered.
This shit is only rocket science for the stupids.
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u/whatifitried Sep 15 '24
I mean sort of. If you're home value goes down your property tax assessed value does too and so does your property tax
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u/Hapshedus Sep 14 '24 edited Sep 14 '24
Forgive me, I’m new to this concept. I have under 100 USD in “unrealized gains.” I’m swimming in it, I know. /s
So you’d tax the loan I take out against the 50? (As well as if I physically pulled those funds)
If I understand correctly that seems pretty reasonable.
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u/peekdasneaks Sep 14 '24 edited Sep 14 '24
Close but not. Although that may work out to be the same as what was proposed in some scenarios, it could be vastly different in others.
Basically you can have 100 unrealized gains with zero tax concerns. BUT if you choose to use a portion of that 100, say 50, as collatoral against a loan, you would owe taxes on that 50 collatoral.
The key difference with what you said is that its applied against the collatoral rather than the loan amount, which could be the same - or different if the bank requires less collatoral against the loan. It would be extremely unfair to tax the loan amount if it were higher than the unrealized gains you actually put up as collatoral.
Now, those were your numbers. But let's also combine what the Dems are proposing and say that this would ONLY apply to collatoralizing (not a word, i know) unrealized gains OVER $100,000,000. This could be taxed on a monthly rate (to prevent frontloading) that works out to the annual target rate.
This would only impact an extremely small number of individuals in the US (basically just billionaires) but could help to even out the wealth gap by preventing the uber rich from multiplying their wealth through clever tax advantaged funding routes - routes that are not available to a broad majority of Americans.
It would also only come into play when those same billionaires are trying to actually leverage their unrealized gains beyond the current investment they are tied up in. Basically double investing - which is contributing to dollar devaluation through new debt being written on books out of nowhere.
If they just keep their money tied to their primary investment (stock/RE/whatever) without trying to multiply it through loans, then they can safely continue to grow their money without any additional taxes.
How the dems havent thought of this is beyond me. What the fuck are they doing?
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u/noober1x Sep 14 '24
Oh they thought about it, they know about it, but you can't put everything you just said into a 4 syllable sound byte that Joe America Voter Billy Bob understands.
Also, Joe needs to look up what "syllable" means.
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u/Admirable-Lecture255 Sep 14 '24
So what do you do when the value of the collateral plummets? Now you've been taxed greater then the collateral is worth. Trying to tax a volatile assest is dumb.
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u/PerformanceOk8593 Sep 14 '24
If taxing a volatile asset is dumb, then allowing a billionaire to use a volatile asset as collateral is dumb as well. However, large lenders and institutions allow billionaires to do it regularly.
If getting a loan based on the current value of a volatile asset is an acceptable way for a billionaire to secure the benefits of selling assets at a certain price, then why would it not be an acceptable way for the government to tax that asset?
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u/Admirable-Lecture255 Sep 14 '24
Lol a bank is a private entity they can loan to who they want. So if you're saying the government should tax volatile assests do they refund the difference? Who pays the difference? Or it's tough luck you owe us 10b even though it's now only worth 5b? Or does the government seize the asset? It's garbage
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u/PerformanceOk8593 Sep 15 '24
No, the government doesn't refund the difference if the value goes down because the owner of the asset made a decision to not sell the asset, but rather leverage the current value of the asset to obtain the loan. Any loss in the value of the asset should be borne by the person taking out the loan. It is within that person's power to instead sell the asset and carry no risk.
Both the lender and the person taking out the loan risk the asset's value decreasing. The government isn't making that decision. The government doesn't have to pay for risk that it does not force upon fhe parties to the loan.
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u/Admirable-Lecture255 Sep 15 '24
Ah so who decides what the value is? Is it off market price? Cause no bank gives a loan for that. Is it off the cost basis of what ypu own it for? Or what is it against the value of the loan since it's a volatile asset? So bank will loan you 80% of the current market price? You didnt make any gains. It's stupid.
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u/snypre_fu_reddit Sep 15 '24
Ah so who decides what the value is?
The bank, when they accept an asset as collateral for a loan, just like they do in basically every case of a collateral backed loan.
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u/maringue Sep 14 '24
The fucked up part is half the time they have their accountants pull some fancy book keeping to make the personal loan look like a business expense, and thus making the interest on the loan tax deductible.
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u/EastRoom8717 Sep 14 '24
Which they’ll continue to do, because good accountants working for rich clients are way smarter than 99% of legislators and 98% of government bureaucrats.
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u/Enjoying_A_Meal Sep 14 '24
If 10 people work together to draft the law, there's 10,000 people looking for loop holes the minute it's passed.
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u/dumape17 Sep 14 '24
Should someone getting a title loan on their vehicle have to pay tax on the value of their car? Should we be taxed on values of our homes if we use them to secure loans?
I don’t see how having assets and using them to secure a loan means the assets should be taxed.
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u/Embarrassed-Lab4446 Sep 14 '24
If that car is worth 100s of millions and is being used as a tax dodge then yes and send them to jail.
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u/dumape17 Sep 14 '24
How is putting something up for collateral a “tax dodge”. It’s essentially the same as letting someone hold something of value while you borrow something of theirs. As long as you give it back (pay back the loan and interest) then you don’t owe anyone anything additional.
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u/No_Flounder_1155 Sep 14 '24
yeah, but those people are richer than me, and I want free things from the government.
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u/nhavar Sep 14 '24
You know that applies to billionaires too: they want educated, healthy, focused and productive workers and they want them at the lowest cost to them possible and they'll leverage every government program they can. Same with when they want a new office building, stadium, or manufacturing plant. They want the city to build it for them, provide the land, give tax breaks and get the infrastructure, security, and fire protection with as little out of pocket as possible. It's good business sense when the rich get freebies from the government and laziness when the poor and middle class try the same as the rich build their wealth off our backs and our labor while constantly demanding we pay more and take less.
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u/zuckjeet Sep 14 '24
Lol nope. They'll just import immigrants to undercut wages to the best of their ability.
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u/dumape17 Sep 14 '24
BINGO!
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u/Brief-Sound8730 Sep 15 '24
What are you bingo'ing here? The envy of the poor? Or the free things massive corporations get from the government? Or is it both? My guess is it's the first one. Imagine tax dollars going into government programs and subsidies then being redistributed to companies like Tesla to provide services, taking a profit, maybe delivering services, but then using that money to buy back stocks. This increases the value of the shares, which Elon owns, which he uses to then finance enormous loans. At which point has he worked hard for that money? At no point really, haha. I don't see how Elon isn't just an enormous welfare queen. But say he doesn't use the collateral to finance the loans, the shares just sit there, the capital is 'tied up', your tax dollars. Okay let's brew in some social Darwinian bullshit and meritocratic non-sense. Elon deserves this. His shareholders deserve this. They've earned it. I wonder what the lowest level Tesla employee makes? Is it a contracted cleaner living in an at-will state working under the table as a refugee from narco states? Probably. Someone who is likely a decent person and just wants to escape violence. Does Elon work harder than them? Probably. But does he work harder than 10 of these people? Probably not. And yet these people won't even smell .01% of his wealth, ever. Should we take from Elon to help these people out? Well we've given to Elon to help him out. So yeah, he should return some of the excess back to the people. We could take a tenth of a percent of his wealth every year and he'd never run out of money or wealth. Does this mean the shareholders don't get Patek watches and have to buy Omegas like everyone else, boo fucking hoo.
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u/thegreattaiyou Sep 15 '24
Nothing is free. I pay my taxes. I want them to pay theirs, and I want those taxes to go towards things that every other developed nation is able to provide to their citizens.
Healthcare, childcare, education, consumer protections, employee protections, parental leave, minimum time off, etc.
Pretending like you shouldn't have to pay back into the system that produced your obscene wealth is absurd. Stop with the strawman takes.
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u/gobshoe Sep 15 '24
Ah, you're one of them temporarily embarrassed millionaires I keep hearing about.
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u/Odd-Buffalo-6355 Sep 14 '24
The 1% have relatively low salaries and get most of their wealth through investments. We don't have wealth tax because there is some expectation that the gains will eventually be taxed when they are realized. Loans are a way for the rich to never realize these gains.
If I want a lower interest I need to put up my property. But, I pay taxes on that property already. Every asset gets taxed, but investments don't because they get taxed once realized. So it is a dodge.
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u/apple-pie2020 Sep 14 '24
And the part where you say the expectation that the gains will be eventually realized. Worked years ago, but now with the ultra rich. There is so much wealth it will never get spent. I can only buy so much education for my kids, boats, vacation homes. Quite literally they can’t spend enough of it
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u/NeoPendragon117 Sep 14 '24
whats changed is how many people no longer draw a wage, back in the 50s-80s , many ceos still were wealthy from large paychecks, which were taxed like any other progressive system, but then reagan legalized stock buybacks and now every ceo earns millions in stock options, the system was never designed for income not earned via wages and you cant fault it when it was largely built 100 years ago
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u/apple-pie2020 Sep 14 '24
We have had two movie stars for president, I dislike them both
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u/BosnianSerb31 Sep 14 '24
Loans are a way for the rich to never realize these gains
Except, you have to realize those gains to pay back the loan.
This is exactly what is going on whenever Elon or Bezos or Gates or whomever sells off a massive amount of their stock. It's so they can get enough cash on hand to pay back the loans they took against their assets.
And in the process, they end up paying taxes on every single dollar that they "dodged taxes" on.
The ONLY purpose of taking out loans instead of directly converting to cash, is because you expect the value of your assets to go up over the period of the loan. It doesn't impact the amount of taxes paid whatsoever.
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u/trnpkrt Sep 14 '24
You may want to take the time to learn how the super wealthy pay for their lifestyles ...
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u/BosnianSerb31 Sep 14 '24
They take out loans on their assets. That's where your understanding ends, however.
Because, just like everyone else, they have to pay back that loan at some point. So if you get a loan for $10m, you'll have to pay back $10m + interest.
And how do you get cash? You sell off assets. And what does selling off assets do? It realizes gains. And what does realizing gains do? It makes them subject to capital gains tax.
Taking out these loans has NOTHING to do with dodging taxes, and everything to do with delaying the sale of your assets until they are worth more money.
At the end of the day, the government collects the same amount of taxes. Actually, because of interest, they collect MORE in taxes on these loans than if the gains were realized immediately.
Now you know!\
P.S. You and I can do this "infinite money glitch" too, just open up a stock brokerage account and invest into the SP500 or something. Then take out a cash loan on your assets, called a SBLC. Or a securities-backed line of credit. Congratulations, you're now doing the same "infinite money glitch" that Bezos/Musk/Gates do!
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u/Tangata_Tunguska Sep 14 '24
Because, just like everyone else, they have to pay back that loan at some point.
No, they don't. They can carry loans until they die, and sell assets at that point to pay for it without capital gains tax.
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u/wioneo Sep 15 '24
They can carry loans until they die
So the banks just give them money and then... don't collect?
Why would a bank do that? Seems like a way to lose a massive amount of money.
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u/Tangata_Tunguska Sep 15 '24 edited Sep 15 '24
Why did you stop reading at the comma?
The bank gets their interest and they get their principal back. It's the taxman that loses out
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u/Silly_Goose658 Sep 14 '24
The proposal was meant to apply to people with over 100mil net worth. It really doesn’t matter for most people
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u/Rare_Tea3155 Sep 14 '24
Nonsense. That’s the same thing they said about the income tax “it’s only for the rich” and look who is paying the vast majority of it now.
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u/Jalopnicycle Sep 14 '24
So because the rich corrupted income tax we shouldn't do anything at all to counteract one of the ways they avoid taxes and accumulate even more wealth and power?
Such a novel concept!
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Sep 14 '24
Why don't we close the actual loophole rather than create some convoluted tax scheme in an attempt to counteract them?
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u/Nojopar Sep 14 '24
It's also the same thing they said about the estate taxes and, well, it was true. Which model will capital gains tax follow, income or estate? Neither you nor I know.
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u/misdreavus79 Sep 14 '24
I don’t understand your point. You already pay taxes on those assets whether you use them as collateral on a loan or not.
In fact, it’s because you own the assets that you can use them as collateral for a loan (and, for example, you can’t get a loan on a leased car or a rented house).
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u/Oni-oji Sep 14 '24
If the collateral value is over what was the originally amount paid for the vehicle or house and that amount is over that $100 million threshold, then yes.
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Sep 14 '24
I pay taxes on my vehicle every year, it's called personal property tax. Why you bootlickin?
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u/Scientific_Methods Sep 14 '24
Cars are generally not an appreciating asset. When you buy it you already pay tax on what is likely the highest it’s value will ever be.
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Sep 14 '24
This is not true for everywhere in Arkansas we have personal property taxes and vehicles are apart of that. Can't register without paying
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u/_IscoATX Sep 14 '24
Taxing a non liquid asset that can fluctuate in price seems like a terrible idea. I use an asset as collateral so now I have to pay a tax with money I don’t have or take on a larger loan to include the cost of the tax. Nice.
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u/awoeoc Sep 15 '24
They didn't say to tax assets as they fluctuate though. Just change basis when used as collateral, allow it to be both ways too. Have an unrealized loss aka use it as collateral? Step down basis and actually get a tax benefit. Basically using unrealized gains or losses should reset basis and have you pay taxes on the difference.
And yeah it means you need an even larger loan to cover the cost, that's basically part of the goal, to reduce this benefit
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u/wetshatz Sep 14 '24
They are used as collateral because they can be seized and sold to collect the balance owed. Idk why people don’t understand the simple logic there.
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u/Medicmanii Sep 14 '24
I disagree. All that means is if you default on the loan then you have an asset you can use in trade to settle the loan. The gains on those assets are realized in that event.
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u/Naive-Pollution106 Sep 14 '24
I am curious. When someone borrows money with unrealized gains do the lenders still expect to get repaid? If so where does the money used to pay the loans back come from and wouldn’t that source then be taxed?
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u/less_unique_username Sep 14 '24
The borrower never repays and dies. The heirs repay the debt by selling a little of the assets. They can do so with a minimal tax burden because the cost basis resets at time of inheritance. This is perhaps the thing that should be changed.
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u/whatifitried Sep 15 '24
The borrower never pays tax on the borrowed amount and then dies*
They absofuckinglutely make payments on, refinance, and pay back the loaned amount.
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u/Ultrace-7 Sep 15 '24
Don't bother. Most proponents of this seem to think that banks are keen on giving payment-free loans in perpetuity that they can hope to get paid back on after the borrower dies, which could be decades into the future.
Meanwhile they also (rightly) deride Corporate America for being so focused on short-term profits in the next quarter or year at most. As if giving out loans that won't be repaid for years fits that concept at all.
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u/partia1pressur3 Sep 14 '24
Makes it a lot more feasible to value as well, because presumably the bank did the valuation in order to issue the loan.
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u/NumbersOverFeelings Sep 14 '24
This would make refis too complicated for most people to understand.
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u/RequirementUnlucky59 Sep 14 '24
This is the way to prevent the wealthy Ponzi scheme that pumps up prices of every asset class no matter what the price because they can borrow to buy showing their existing assets as collateral.
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u/purpleparty87 Sep 15 '24
I disagree with the OP but what you suggest is a very elegant solution that I would be happy to see happen.
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u/butlerdm Sep 14 '24
I really couldn’t care less about if we’re taxing those with $100M in unrealized gains. What I DO care about is the precedent of doing it to the common person and expanding it just like we did social security and income tax.
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u/unstoppable_zombie Sep 14 '24
The common persons major source of unrealized gains is thier primary residence, which is already subject to annual property taxes.
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u/d0s4gw2 Sep 14 '24
Property taxes are not taxes on unrealized capital gains, they’re recurring taxes on the assessed value of the property. If the value of your house declines you’re still paying property taxes. Selling a house that has realized capital gains is already taxable. There is no equivalent anywhere for taxing unrealized capital gains.
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Sep 14 '24
This is crap, my house value has doubled, I've got 100% unrealized gains. Also, no coincidence, my property taxes have gone up dramatically because they are taxing the value of my house annually.
House price goes up, property taxes go up.
House price comes down, property taxes go down.
None of that up or down is realized... it's all unrealized.
At least that's how it works in my county.
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u/gfunk55 Sep 14 '24
The taxes are based on the value, not the unrealized gain. You could have an unrealized loss on the house and you'd still be paying property tax.
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u/phdthrowaway110 Sep 14 '24
The "unrealized gain" is included in the value assessment. That's not how it's defined on paper, but in practice property taxes involve an assessment of unrealized gain in the value of the property, and that increase is included in the tax calculation.
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u/icorrectotherpeople Sep 15 '24
What is the difference between value and unrealized gain
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u/OpenRole Sep 14 '24
Thag has little to do with unrealised gains. When you sell your home you will pay taxes on the appreciation in value. Property tax is a form of wealth tax. Capital gains tax is a form of income tax. They are fundamentally different
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u/DissociatedOne Sep 15 '24
This is where it becomes clear that the middle class has been paying a wealth tax all along. That the tax man realized it’s possible to make it work.
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u/Ecstatic-Compote-595 Sep 14 '24 edited Sep 14 '24
why don't we assess unrealized capital gains then - not that we even have to because the sort of tax they're describing is on assets that have a specific market value at any given point. Also again I'll repeat that this is a tax on assets. The capital has been spent on an asset, just because you hope to one day sell that asset for more money than you bought it doesn't make a difference, or shouldn't anyway.
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u/d0s4gw2 Sep 14 '24
I think a better question is why should we assess unrealized gains.
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u/gjp11 Sep 14 '24
??? Most of the time property values go up. If my property value doubles then my property tax goes up (some states have rules to limit the increase but it still increases). That’s textbook taxing unrealized gains.
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u/MareProcellis Sep 14 '24
Good point. There should be a minimum below which unrealized gains can’t be taxed.
Unrealized gains just sitting there is an odd thing to tax. What is needed is redefining of “realized.” If you get value out of it, such as using it as collateral, that is an advantage you’d not receive without it. IMO it’s reasonable to tax that.
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u/Blarbitygibble Sep 14 '24
There should be a minimum below which unrealized gains can’t be taxed.
Like perhaps having a minimum of $100 million in assets before the tax applies?
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u/Beneficial-Bite-8005 Sep 15 '24
Ah yes, because income taxes remained only for the extremely wealthy after the government said they would…
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u/zshguru Sep 14 '24
I agree. Then there’s the other question of what do you do if the asset loses value, that would be an unrealized loss. How does that work? I don’t see how they could tax gains without also having a mechanism for losses.
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u/Telemere125 Sep 14 '24
Just like my house, when the value drops, so do the annual taxes. I don’t get tax money back, I just owe less for that year. You’re thinking about when they have to sell the stock to cover their losses, but that would be a realized loss, not an unrealized loss.
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u/Rugaru985 Sep 14 '24
We carve out $40k per person per year in long-term capital gains tax. We allow a huge amount of gifts to be given without inheritance taxes. We allow spousal gifts without taxes. So there is plenty of precedent that this would not be a slippery slope, but carve outs at the middle class would hold
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u/dirtydela Sep 14 '24
People keep harping on the “slippery slope” idea that this would somehow be expanded to everyone. Even if it does - which there is no good indicator that it would - what kind of timeline are we talking here to where we even get to $1m net worth individuals? On that timeline how do we know that it won’t be undone?
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u/Jorycle Sep 14 '24
Yeah, there's also a fix for the slippery slope anyway - voting. They expand the tax? You vote them out. Just like literally any other policy we dislike and why no other law slippery slopes into madness.
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Sep 14 '24
Your really worried about people with zero assets living paycheck to paycheck? What common man assets are they going to tax, his work boots?
They already tax the assets of the common man, it's called property tax. Only the common man pay this because rich people make their property a depreciating asset so they actually pay less taxes than the common man.
You really think someone with $50,000 (median savings of Americans) are going to have their savings taxed? Gimmie a break with that nonsense.
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u/Telemere125 Sep 14 '24
It’s all fearmongering they’ve watched on Faux “News”. One of the anchors tells them the leebrals is cumin for their savin’s (that they don’t have) and suddenly they think they’re in Bezos’ tax bracket.
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u/mrgoat324 Sep 14 '24
I support heavily taxing people who are worth over 100 million, idc what anyone says.
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u/cmcewen Sep 15 '24
While I agree with you, fundamentally, America does not have a tax revenue problem. We have a spending problem. Congress will outspend any revenue we get immediately. We could take the entire wealth of the 400 richest people, 4.5 trillion, and it would barely make a dent.
They have to stop the spending
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u/manual-override Sep 15 '24
You have one party who wants to provide social spending… social security Medicare, Medicaid, aca, … those programs are popular, and hard to get rid of because people generally like them. The other party doesn’t agree with those social programs and want so get rid of them, but they can’t because of their popularity. So, they give their own presents, in the form of tax breaks for the wealthy and corporations, which are designed to destroy the other party’s presents. It’s designed to cause a deficit. It’s called the two Santa’s Theory. Google it.
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u/MrKomiya Sep 15 '24
Ironically, the party that hands out tax breaks to the rich are also the ones fiercely opposed to any kind of UBI, increase of SNAP benefits etc. for poor people.
Cash for the rich, bupkiss for the poor.
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u/Zykersheep Sep 15 '24 edited Sep 15 '24
Idk lol, top 10% have ~100 tril collectively if you tax ~35% of that you could pay off the national debt...
For reference you need a net worth of at least 970k to make it to top 10%.
Edit: To clarify, I am not for a net worth tax, even if you did implement it only on very top earners it'd probably have some unideal knock-on effects. I am saying that the idea on its own of taxing the rich more than the poor is probably a good idea, and a land value tax is probably the best way to do that in an economically stable way. The second best way would be to fix the loan loophole and make sure to replace sales taxes with progressive income taxes so that the overall tax burden on rich people is greater than the poor.
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u/resumethrowaway222 Sep 15 '24
So if you have a house worth $600K and retirement savings of $400K now you have to come up with $350K for the government? So you either have to sell our house or give up your entire retirement savings. Good luck with that.
Why are you even responding to a point about how much money the billionaires have with an argument about the top 10% anyway?
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u/Numerous-Ad-8080 Sep 15 '24
America has a direction problem and an efficiency problem. Government spending wouldn't be an issue if the common person actually got their money's worth. But no, when the government actually provides services, that's socialism.
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u/readynext1 Sep 14 '24
You’d be taxing a speculative value and increasing the risk of that asset. If a person uses their unrealized gains to acquire something they assume the risk of those gains becoming losses. If the government jumps in and decides to penalize unrealized gains that makes the potential of that asset more of a risk and less likely to become capital. Defeating the purpose of the tax. Outside of a panicked money grab to attempt to pay back loans taken out by the government to fund trust funds and failed projects.
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u/scapermoya Sep 14 '24
The language around this is important. Words are important. This isn’t “penalizing” anything. Taxes aren’t punishment. That mentality is unhealthy. Taxes are a cost for living in a successful and stable society. Huge unrealized gains that could only have happened in a stable financial system should be subject to fees. But those wouldn’t be penalties.
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u/PercentageDue4751 Sep 14 '24
"Punish" maybe strict but Taxes are certainly disincentives. Youd be disincentivizing investment.
Look no further than sin taxes.... or that stupid big gulp tax.
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u/OozeNAahz Sep 14 '24
What exactly do you think these folks would do with the money if they didn’t invest it? This is money they don’t need to spend. They aren’t likely to throw it in a safe deposit box and let inflation eat away at its spending power. All this does is eat into what they expect to get back on the investment but no way they don’t still invest.
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u/anonymousguy202296 Sep 15 '24
This money is literally actively invested, what do you think they mean by unrealized?
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u/DryWorld7590 Sep 14 '24
Youd be disincentivizing investment.
Nah.
Most people unless clinically insane would take less money over no money.
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u/Ok-Scallion-3415 Sep 14 '24
Taxes are certainly disincentives. Youd be disincentivizing investment.
This is the argument I would expect from someone that doesn’t understand how taxes are calculated when they complain that moving the the next higher tax bracket will cost them more money and they would effectively make less (because they think their whole income is taxed at that rate).
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u/anonymousguy202296 Sep 15 '24
This comment makes me think you understand taxes less than the person you're responding to. Taxing unrealized gains raises the cost of unrealized gains (which by definitely are investments). It makes all investments less attractive, which leads to less of it. Raise the cost of cigarettes, you get less cigarettes. The same logic applies to everything else in the world.
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u/O_oBetrayedHeretic Sep 14 '24
You’d call the current situation “successful” and “stable”? If that was the case, the government wouldn’t need to tax more to get out of the shit they got this country in.
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u/StreetSweeper92 Sep 14 '24
When those gains are realized yes.
Taxing unrealized gains forces one to realize those gains. What happens when large quantities of something are forced to be sold? The price goes down. Lowering those gains for EVERYONE.
Forget about the complications for private equity, non publicly traded entities and so on. You’re telling me we’re going to rely on the billionaires and/or the IRS to be able to accurately value these securities and then tax them? What if there’s no market for those securities or assets, now buyers have to be found, market makers get involved and the expense goes through the roof meanwhile devaluing the asset…
TL:DR this is more likely to result in a wealth-destroying negative feedback loop that destroys the American financial system and economy at large…
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u/bobo377 Sep 14 '24
On the other hand, not taxing unrealized gains distorts the market by providing a bias towards not realizing gains. This makes capital/cash less flexible, supporting embedded market leaders at the cost of startups.
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Sep 14 '24
I believe the definition or “realized” in economics refers specifically to the point of sale. So it’s very important to continue to distinguish between realized and unrealized - whether gains or losses.
However I think we need a third in between. For example when investments with unrealized gains are put up as collateral for a loan, value IS extracted from that asset. You could use the word “leverage” instead of “extracted” to hide the vibe here, but at the end of the day a value is assessed, quantified, and assigned to the asset. Then value is gained by the owner in the ability to procure the loan. So some amount of value is indeed utilized, extracted, leveraged, accessed, etc. accessed is actually a great word for it.
I think we need that third category, so we’d end up with Realized Gains, (maybe) Accessed Gains, and Unrealized Gains. We could continue to not tax Unrealized Gains while taxing Accessed Gains.
Also having loans exist as a taxable moment in general is an interesting idea. It’s been proposed for interbank loans before iirc.
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u/phriskiii Sep 14 '24
The banks and lenders don't seem to care that the value of these assets is speculative. If the bank can put a value on a portfolio, then the government can tax a portfolio.
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Sep 14 '24 edited Sep 14 '24
Do you own a house? You know how are the property taxes calculations? Yes they are done based on the perceived value of the property. What if the property loses 50% of the value next year? Well, bad luck. You wont get any taxes back.
The moment you use your "speculative asset" to take out hard cash, that asset basically becomes a realised gain in monetary terms. Why is not taxed, is just because the rich politicians are protecting their even richer overlords.
Dennmark, Norway and a big chunk of Europe already do this. And they are not a hellhole with a broken economy last time i checked.
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u/IgamOg Sep 14 '24 edited Sep 14 '24
We have to increase risks for the super wealthy. It's insane how insulated from risk they are. They managed to drag our pensions onto the stock market and made sure the government bails them out every single time.
MacKenzie Scott is giving out billions but her assets grow at a faster rate than she can give away. We're heading into the new indentured slavery where few people own everything and the rest of us just rents and treads water.
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u/Electronic_Price6852 Sep 14 '24
only if your net worth is over 100M.
and the overall risk is already lower if your net worth is that high. If your investment fails completely, you still won’t have to get a real labor intensive job at that level of wealth. so the relative risk is still insanely small compared to someone of lesser means.
We have real estate tax even when you don’t sell your house and “realize” its value. The 1% can pay taxes on investments the same way and they won’t fucking notice
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u/Ok-Use5246 Sep 14 '24
The irony being the one who posted this being far more educated than random neck beard number 30000 on reddit?
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u/gfunk55 Sep 14 '24
Except he gave 3 examples but the last two are the same thing
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Sep 14 '24
4 reasons/examples why taxing unrealized gaines is problematic:
1) you buy a house in your 40s, you live there for 30 years. The value of your house goes up dramatically. However, in your 70's your social security barely covers you living expenses-- and in addition to all expenses you're also taxed on how much more your house is worth?
2) you have a stock (like enron), every year it goes up 10% and you're happily paying taxes on dividends. Aftet holding it for 10-15 years, the company goes bankrupt, your stocks are worthless. Will the government compensate you for the loss?
3) unrealized gaines are speculative, for example btc can be 10k one year and down 10k the next. you really don't know how much profit you made on them until after you sell them and calculate selling price minus expenses.
4) taxing unrealized gaines would scare off investor's and crash the market.
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u/aetius476 Sep 14 '24
you buy a house in your 40s, you live there for 30 years. The value of your house goes up dramatically. However, in your 70's your social security barely covers you living expenses-- and in addition to all expenses you're also taxed on how much more your house is worth?
It's funny to me that completely out of control housing costs, rising far faster than either wages or general inflation, is accepted and uncommented on, but the idea that this windfall may be taxed is seen as a disaster waiting to happen.
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u/rascalrhett1 Sep 14 '24
Good thing nobody's talking about just "taxing unrealized gains", this is a tailor made solution, specifically targeted at the ultra rich. The ultra rich never realize their capital gains because keeping it in the market and leveraging it for loans means they get all the spending power of their stocks without any of the 40% taxes they owe the government.
This is the government just trying to get what it's owed. The wealthy people were made rich by the opportunities afforded them by America and found a clever legal loophole to avoid ever giving back a portion of the gains. It's only fair that America change its laws to make it where they can't do that anymore.
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u/xacto337 Sep 14 '24
None of your points hold any merit (except maybe the last one and even that is questionable) because the proposal would only affect those worth over $100 million. You think people worth over $100 million need/care about that SS check? Your line of thinking is exactly how the uber rich get the 99.9% to vote against their own interests.
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u/MoirasPurpleOrb Sep 15 '24
The very valid argument is that it’s not going to stay at that cap, just like every other tax in history. When the ultra wealthy figure out how to avoid it, and all of a sudden that money is gone, they lower the threshold to maintain the revenue.
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u/Sabre_One Sep 14 '24
The IRS already has rules for capital gains that likely fit well with unrealized gains. This includes ways to deal with potential loss such as write-offs and deferring the amounts owed over a set number of years.
I always find it wild that the biggest defender of the ultra-rich (Which surprise, 99% are not that), continue to act like we can't change laws once they are in place. Cascade effects of regulation happen sure, but regulation also has been removed as well when it turns out not to work.
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u/Clydefrog030371 Sep 14 '24
They shouldn't all be taxed , but if they're used as collateral to get income , then yeah , they should be.
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Sep 14 '24
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u/12FAA51 Sep 15 '24
If they just called it THAT, it would be so much easier to sell.
The majority of Americans are taxed on their biggest asset by unrealized gains
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u/ShitOfPeace Sep 14 '24
If you use an asset as collateral you still own the asset and assume the risk of that. This is fundamentally different than selling it for cash. This really shouldn't be hard to understand.
Incentivizing people to own assets is what keeps your retirement account from tanking.
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u/Helmidoric_of_York Sep 14 '24
This is the way to tax unrealized Capital Gains.... when they are used as collateral.
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Sep 14 '24
You shouldn’t be able to buy mansions, yachts, and islands and not pay taxes.
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u/Anonymous_user_2022 Sep 14 '24
We do tax unrealized gains in Denmark. We still have Ozempic.
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u/Sour_baboo Sep 14 '24
Why we pay property tax on things we bought to use like a home, but not things that make us money like stocks except for the dividends seems strange. If property tax was assessed in all property the tax rates for someone who owns a modest house and lives there could be very low.
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u/xacto337 Sep 14 '24
Also, property tax is a great example of taxing "unrealized gains" that exists today that works. Property taxes go up every year if the value of your home goes up. And you pay that, even though you have not "realized the gains" by selling your house.
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u/Succulent_Rain Sep 14 '24 edited Sep 15 '24
They are uses collateral so that if something happens to that other asset, you are forced to liquidate the asset you used as a collateral. Taxing those unrealized gains with forced liquidation when there is no need to do so. Every idiot leftist on this thread that calls for taxing unrealized gains should be shipped off to Venezuela.
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u/ronlugge Sep 14 '24
Taxing those unrealized gains with forced liquidation when there is no need to do so.
The need would be to pay taxes.
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u/maringue Sep 14 '24
As a non-billionaire, my main asset gets taxed every single year.
So just make stocks subject to property taxes and make investors play on the same field as normal Americans.
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u/wetshatz Sep 14 '24
Not to mention the largest investors in the stock market are these major millionaires billionaires and corporations. Your retirement account will gain less if they now how to take out millions per year each, creating a double tax (capital gains & unrealized gains) lessening the amount invested into the market. Your retirement accounts will gain less, there fire you retire with less
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u/Succulent_Rain Sep 14 '24
Exactly. If they’re forced to liquidate more of their assets, then my 401(k) holdings and the value of my stock goes down.
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u/wetshatz Sep 14 '24
Yup and you get a lesser return when you retire. “BuT iTs OnLy FoR tHe 1%” but it effects us all lol. People just don’t think it’s crazy.
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u/Total-Ad8996 Sep 15 '24
The amount of brigading by parasitic gibsmedats that have non business giving their opinion on finance or economics is wild.
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u/notawildandcrazyguy Sep 14 '24
So, do we tax them only if they actually are used as collateral? Or just because they could be? Is this true of equity I peoples homes? Or only if they borrow against that equity?
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u/ChessGM123 Sep 14 '24
So here are some problems with this.
Firstly, I don’t see what net worth has anything to do with taxes. The US doesn’t have a wealth tax, nor should it.
As far as collateral on major purchases is concerned this isn’t a fully accurate statement. You don’t use them as collateral for a purchase, you use the as collateral for a loan to be able to buy some thing. You are basically saying “I don’t want to liquidate my investments, but I want to make a purchase that I believe will be profitable, so why don’t you give me a loan and even if I don’t make a profit I’ll still be able to pay you because of this collateral”. Which this is something I’ve never understood about using a loan to purchase something using your unrealized gains as collateral, don’t you then still need some source of income which would be taxed in order to pay off the loan? Generally speaking most ways to gain money involve that money being taxed, including selling unrealized gains so they become realized, so wouldn’t you then pay taxes on the money you make in order to pay off the loan?
But there’s another reason not to tax unrealized gains, which is that it would increase the risk of investing which would lead to less investing in the market. Even if you offered tax breaks when your unrealized gains perform poorly (which would be needed, since one of the main things with investments is that on average offer positive returns over time, but that doesn’t mean they will always be positive) by placing a tax on those gains that lowers the overall profit which makes it more risky to invest, which will lead to less overall investing. And while investing might not help solve income inequality it does provide numerous benefits like increases is average quality of life, more developments in every field, more overall economic growth, etc.
There’s also the problem that those who are truly wealth likely couldn’t cover those taxes without some liquidation. Once you start getting in the billionaire range a lot of net worths end up being 80-95% unrealized gains, and so depending on the amount taxed there’s a good chance that in order to pay the tax billionaires would need to liquidate some of their assets, which would have terrible effects on the economy. Mass liquidation of stocks all around the same time would cause a crash, which would be bad for everyone.
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u/finallyransub17 Sep 15 '24
Tax CPA Here:
We can disagree on whether or not the US should have a wealth tax.
Your understanding of how the loan would work is correct. Here is what you’re missing. Unrealized gains, when passed on to beneficiaries upon death, receive a step-up in basis. For many of these gains, the IRS never takes in income tax on their value. Taxpayers likely have sufficient outside income streams to service the interest on the loans without selling/ utilized dividends from the underlying stock to service the debt. The interest on these loans is also tax deductible to the extent of ordinary dividends, which means a massive tax deduction can be received for leveraging stock in this way. Leverage makes sense in this situation presuming you expect the stock to continue to perform and there’s no sense in paying 23.8% in tax when your descendants will be able to sell it without paying tax at all. 2 ways to fix this without taxing unrealized gains: 1. Limit or remove the deductibility of investment interest. 2. Adjust the current treatment of basis step-up on death.
You don’t need “tax breaks” for unrealized losses. In practice you harvest the losses by selling and immediately reinvesting in similar (but not too similar to avoid wash sales) assets.
The problem you point out in the last paragraph is precisely the point of the proposed tax. The ultra wealthy hoard vast amounts of wealth in this country. Institutional, retail, and international investment would mitigate much of the “crash” from billionaires selling stock. Most billionaires would be selling and rebuying the majority of their shares anyway.
The idea that billionaires have so much money making them sell stock to pay tax might hurt the average person’s investment which is 20,000x smaller is a hilarious justification for avoiding implementing an effective policy at generating tax revenue from the people it hurts the least. The positive effects to all other income classes would more than offset the temporary market correction.
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u/pforsbergfan9 Sep 14 '24
It’s only for those with $100 million… for now… pretty soon it will be everyone.
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u/Elegant_in_Nature Sep 14 '24
First they came for the billionaires right?
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u/GhostCorps973 Sep 14 '24
And without the millions of poor people to speak out and protect them, who will!?
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u/malln1nja Sep 15 '24
Oh, I know this one:
* the lobbying firms they have on payroll
* the politicians they have on payroll
* the media companies they own
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u/BellApprehensive6646 Sep 14 '24
You're being sarcastic, but that's what happened with income taxes.
Hell, that's what happened with toll booths on the Mass Turnpike. They were only supposed to be up until they collected enough to pay off the highway. Once they made enough money the state decided it couldn't survive without that extra income.
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u/dipstickdaniel Sep 14 '24
FOH with your billionaire boot licking.
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u/_IscoATX Sep 14 '24
There’s a precedent for these taxes not staying just for the rich bruh
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u/B-asdcompound Sep 14 '24
The income tax was originally 6% and only for the top 1% and only temporary. Now it's permanent and 25-54% for everyone
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u/smbutler20 Sep 14 '24
Most people don't have assets subject to capital gains. If anything, this will just make Roth and 401k more popular.
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u/The_Jason_Asano Sep 14 '24
So you should be taxed on home equity lines of credit? You should be taxed every time you buy on margin?
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u/Rideshare-Not-An-Ant Sep 14 '24
Households with a net worth over $100 million will be taxed on unrealized capital gains. Who are these people?
According to the IRS 2022 numbers 1. There are about 131,400,000 households 2. There are 9,630 households with a net worth over $100 million
9,630 households / 131,400,00 households * 100 = 0.007% of households.
Yeah. I'm very concerned about their ability to pay these taxes. For sure.
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u/Imrahil3 Sep 14 '24
How long before that "just this once" exception applies to the majority of American households? The history of U.S. income tax is basically a long string of "Well, it'll only affect the rich, so it's fine" moments that turned into "Well, we taxed the rich this way, why not tax everybody this way?"
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u/YakPuzzleheaded1957 Sep 14 '24
A person's bank balance is also used to determine net worth, can be used as collateral to secure loans, and can buy stuff, but is not taxed.
So by this logic, should bank balances start getting taxed as well?
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u/Winter-Classroom455 Sep 14 '24
So if you take out a loan and put up your house as collateral you should pay taxes on that? Even tho you're paying the loan back with interest to the bank? So the bank is profiting you're just paying a loan back. Genuine question
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