Subject: Re: Biden's billionaire tax rate fact checked
Let's say someone buys $500k worth of a volatile stock like Coinbase. In a year it's worth $1M, and we tax the $500K unrealized gain so they owe, let's say, $100K in taxes. They sell $100K worth of stock to pay the taxes, so they now have $900K worth of stock. The next year Coinbase falls 50%, so they now have $450K worth of stock, or less than they started with. They also experienced a $450K unrealized loss. How does that get treated? If their salary is $200K, do they get to write off the $450K loss against their salary, so they now owe no taxes on their salary? And still get a refund?

It does pose enormous complexity. Then again, though, so does the very concept of depreciation. In the abstract it's crazy that if I buy a piece of durable capital equipment for my business - even one that is bespoke to my needs and has absolutely no resale value - that a proper calculation of my business income for each year will require me to come up with a figure for how much of the value of that machine has been consumed during the past year. We're able to do this because we just apply various heuristics to come up with depreciation values that are certainly wrong in their specifics, but are a kludge to acknowledge that depreciation exists even though we have absolutely no practical way to measure it...and being kind of okay with that.

It's not the easiest thing in the world to value assets that aren't publicly traded stocks - but we generally manage. Land is unique and difficult to value, but almost every piece of property gets assessed every year or two. There are disputes and competing theories of valuation and whatnot, but we muddle through. There are lots of financial firms that hold huge amounts of non-publicly traded assets - private company shares, timberlands, mineral rights, artworks, what have you - and they manage to both have a sense of what their holdings are worth and periodically mark them to market when required.

So if we were determined to plunge ahead with this kind of a system you'd definitely want to just get approximately right. Something like this:

1) Only certain classes of assets will be taxed on heretofore unrealized gains. For example: land and buildings, securities and other financial instruments, and perhaps limited tangible assets (like fine art and collectibles and whatnot). Set a high limit (say, $10 million for any individual asset or personal holdings).

2) Each year, you value the asset. It can be approximate, and we average out short-term security price changes. If the value of the asset has doubled off your basis, you have to realize 20% of the gain. You record earnings of that amount and incur the appropriate amount of tax, and your basis in the asset increases accordingly.

3) For securities and other tradeable financial assets, the tax is due when incurred. For non-fungible assets (like land or a 1/3 share of a private business or whatever), the tax liability can be carried forward as a future obligation against the asset to be paid when sold, but accumulates interest.

The actual implementation of this will end up being much more complex - but something like that broadly mitigates the major problems being raised in this thread. You assess only against large asset holdings, you don't assess until the assets have appreciated a lot, and you provide an option for assets that aren't easily sold to just "hold" the tax liability until a taxable transfer occurs - but it's not free to do that.

I still don't think it's worth doing, personally, but it's not impossible to come up with this type of system.