Post New

...is, as usual, disingenuous.

https://www.nytimes.com/live/2024/03/08/us/sotu-fa...

(Or read it for free here: https://archive.is/tRXQI)

“You know, there are 1,000 billionaires in America. You know what the average federal tax is for these billionaires? They are making great sacrifices: 8.2 percent. That’s far less than the vast majority of Americans’ pay.”

Mr. Biden was referring to a White House study, released in 2021, that used a “more comprehensive measure of income” than is currently assessed. But it is not technically the tax rate paid under existing federal law.

The report in question included gains made in unsold stocks, which are not taxed until the asset is sold. It estimated the average federal income tax rate paid by the 400 wealthiest families in the United States to be 8.2 percent.

Gains in unsold assets. This is how you lie with numbers by claiming your net worth on paper is the equivalent to a stack of gold bars held in a safe. Unrealized income is not actual income.

This is the same thing as going to every homeowner in the country and saying, "The value of the house you bought in 2000 has doubled. Therefore, you owe tax on the 'income' you've received". That's asinine.

Kudos to the NYT for committing a random act of journalism.

This is the same thing as going to every homeowner in the country and saying, "The value of the house you bought in 2000 has doubled. Therefore, you owe tax on the 'income' you've received". That's asinine.

But it's also asinine to pretend that someone like Warren Buffett has had "only" a few hundred million dollars in earnings in his lifetime. He went from a negligible amount of assets to having a net worth of $100 billion. He must have earned a lot more money over the last seventy years than the $10-20 million per year he declares in taxable income - you can't go from $0 to $100 billion earning that "little."

Unrealized appreciation of assets is not "income" within the meaning of the tax code. But neither is it nothing. If one person bought $10,000 worth of shares in Apple in 2000, and another bought $10,000 shares of IBM at the same time, they'd have about $2,000,000 and $20,000, respectively. One person has earned nearly two million dollars on their investment, and the other has earned only ten thousand, and it's asinine to pretend that they've both "earned" exactly the same - zero - over that time frame.

For lots of reasons, we do (and perhaps should) exclude unrealized asset gains from a formal definition of income subject to taxation - but an informal understanding of how much of billionaire's "earnings" are actually paid in taxes doesn't require us to pretend that massive increases in personal wealth in unrealized holdings don't exist.

But it's also asinine to pretend that someone like Warren Buffett has had "only" a few hundred million dollars in earnings in his lifetime. He went from a negligible amount of assets to having a net worth of $100 billion. He must have earned a lot more money over the last seventy years than the $10-20 million per year he declares in taxable income - you can't go from $0 to $100 billion earning that "little."

It's the difference between income that is "realized" - as in, changed from paper to real - versus "unrealized", or potential income. The left has long wanted to tax the latter.

Unrealized appreciation of assets is not "income" within the meaning of the tax code. But neither is it nothing. If one person bought $10,000 worth of shares in Apple in 2000, and another bought $10,000 shares of IBM at the same time, they'd have about $2,000,000 and $20,000, respectively. One person has earned nearly two million dollars on their investment, and the other has earned only ten thousand, and it's asinine to pretend that they've both "earned" exactly the same - zero - over that time frame.


Yes. And...?
Are you suggesting that risk is something that's normalized across asset classes?

For lots of reasons, we do (and perhaps should) exclude unrealized asset gains from a formal definition of income subject to taxation - but an informal understanding of how much of billionaire's "earnings" are actually paid in taxes doesn't require us to pretend that massive increases in personal wealth in unrealized holdings don't exist.

It's a disingenuous argument. Suppose I take a risk and buy a run-down piece of property in a bad neighborhood but a massive turnaround happens and 10 years later my property is suddenly worth 10x what I paid. The liberal argument is that "through no effort of your own you're now worth 10 times what you were, so you should pay" even though no actual cash has been exchanged. If they had their way, someone who put some capital at risk would then have to turn around and sell a bunch of it to pay the tax bill on income they never really received...until all the capital was exhausted.

It's not workable on many, many different levels.

Are you suggesting that risk is something that's normalized across asset classes?

No. But neither does accumulating wealth through shrewd investments, rather than (say) selling your labor, mean that you haven't earned anything. It's not taxable income within the definition of the tax codes, but it also isn't zero earnings.

The liberal argument is that "through no effort of your own you're now worth 10 times what you were, so you should pay" even though no actual cash has been exchanged.

No, it's not. Sure, some socialist Oberlin grad students may make that type of claim. The liberal argument isn't saying that you earned that wealth through "no effort of your own"; instead, they're saying you have had earnings. If you started with $100K, and ended up with $1M ten years later, you have earned a lot of money over that time period. You have earned more money than the guy working a minimum wage over that ten year time period.


Yes, there are enormous practical difficulties in taxing unrealized income. I agree it's unworkable on many, many levels. But it also results in a less-than-fair tax system. Warren Buffett will end up having earned more than $100 billion over his lifetime, and he'll end up paying less than a fraction of a percent of it in income tax. Meanwhile, you might take 20,000 accountants or lawyers, and they collectively might earn $100 billion over their lifetimes - but they'll pay close to 20% of it in income taxes. While there are lots of logistical and practical reasons that justify that discrepancy, it is far from fair - and it's worth keeping in mind that billionaires who earn their vast fortunes in their company's stock are absolutely paying a much smaller proportion of their lifetime earnings in taxes than most other people who earn far less.

No. But neither does accumulating wealth through shrewd investments, rather than (say) selling your labor, mean that you haven't earned anything. It's not taxable income within the definition of the tax codes, but it also isn't zero earnings.

It's a gray area...but also not one worthy of the level of demagoguery it gets.

The liberal argument isn't saying that you earned that wealth through "no effort of your own"; instead, they're saying you have had earnings. If you started with $100K, and ended up with $1M ten years later, you have earned a lot of money over that time period. You have earned more money than the guy working a minimum wage over that ten year time period.

Technically you've realized nothing.
Let's play this out logically and fit this Unrealized Income Tax into our current system.

I buy 10 shares of XYZ corporation for $10 each for a total investment of $100.
During the course of the next year, XYZ's stock price goes up to $100. Through no effort of my own - and yes this is the left wing argument - I've "earned" $900.

So let's apply a 20% tax to my "earnings" and come up with a bill of $180. I therefore have to sell 2 shares of stock - $200 - to cover my tax owed. I have 8 shares of stock left and $20.

Moving to the next year. XYZ's stock goes to $200. I now have 8 shares x $200 = $1600 and an "income" of $1500. I now owe $300 in Unrealized Income Tax. So I go and sell 2 more shares for $400 in cash and pay my $300.

I'm now down to 6 shares and $120 in cash for a total 'net worth' of $1320. I should have $2000 but now I only have 2/3rds that.

I can game this out until my shares drop to zero. I supposed one could come up with a Mark to Market scheme where I'm only taxed on the marginal gain from one tax period to the next...but that only slows the selloff of my core assets, doesn't it? But the key question is, would this go the other way...

...meaning if my XYZ stock dropped to $5 a share...would the government issue me a refund or a massive loss carryforward?

But it also results in a less-than-fair tax system. Warren Buffett will end up having earned more than $100 billion over his lifetime, and he'll end up paying less than a fraction of a percent of it in income tax. Meanwhile, you might take 20,000 accountants or lawyers, and they collectively might earn $100 billion over their lifetimes - but they'll pay close to 20% of it in income taxes. While there are lots of logistical and practical reasons that justify that discrepancy, it is far from fair - and it's worth keeping in mind that billionaires who earn their vast fortunes in their company's stock are absolutely paying a much smaller proportion of their lifetime earnings in taxes than most other people who earn far less.

I hit send too early.
I've always been amused at the Warren Buffet stories, especially the one where he claims he pays less in tax than his secretary. My retort on that one is that a) there's nothing stopping 'ol WB from writing a bigger check to the US Treasury every year and b) he's a cheap SOB for not paying his secretary anything.

There are also many ways to look at "Fair". Is it fair that one class of people pays literally NO income taxes? That's the system we have today - the bottom 40% pay zero in federal tax.

Or is it fair that a guy who's created 331,000 jobs (that's the estimate for the number of BH slots) to be taxed at a far higher rate than anyone else?

Dope:My retort on that one is that a) there's nothing stopping 'ol WB from writing a bigger check to the US Treasury every year and b) he's a cheap SOB for not paying his secretary anything.

Which means you have nothing to say.

There are also many ways to look at "Fair". Is it fair that one class of people pays literally NO income taxes? That's the system we have today - the bottom 40% pay zero in federal tax.
-----------------------------------

But-

What percentage of taxes do the poor pay?
When all federal, state, and local taxes are taken into account, the bottom fifth of households pays about 16 percent of their incomes in taxes, on average. The second-poorest fifth pays about 21 percent.Sep 17, 2012

There are also many ways to look at "Fair". Is it fair that one class of people pays literally NO income taxes? That's the system we have today - the bottom 40% pay zero in federal tax.

thanks for the oft-repeated bullshit. And many of these people that you are shitting on are the MAGA stalwarts.

The most pernicious misconception about people who don't pay federal income taxes is that they don't pay any taxes. That oft-heard claim ignores all the other taxes Americans encounter in their daily lives. Almost two-thirds of the 47 percent work, for example, and their payroll taxes help finance Social Security and Medicare. Accounting for this, the share of households paying no net federal taxes falls to 28 percent.

And those aren't the only other taxes they bear. According to economic research, the corporate income tax discourages domestic investment; that depresses wages, so workers are effectively paying some of the corporate tax. More directly, many households pay federal taxes on gasoline, beer and cigarettes. And then there are state and local sales, property and income taxes — all of which are often less progressive than the federal income tax. Putting all these together, a family of three with an income of $30,000 would owe no federal income tax (in fact, they would get money back). But they could easily pay more than $4,500, or 15 percent of their income, in taxes.

And there is this:

Many high-income people game the system to pay no income tax.

Our jerry-rigged tax code leaves many Americans with a nagging sense that other people are exploiting loopholes to avoid taxes — and the rest of us have to make up the difference. Sadly, there's an element of truth to that. But gimmickry by high-income taxpayers has essentially nothing to do with who does and doesn't pay income taxes. Our colleagues at the Tax Policy Center estimate, for example, that households with cash incomes of $200,000 or more account for less than 0.1 percent of the 47 percent.

The vast majority of people who pay no federal income tax have low earnings, are elderly or have children at home. They are exempt from the income tax because of features Congress added to the tax code, thanks to bipartisan efforts, to help these groups. For example, Presidents Ronald Reagan and Bill Clinton both favored the earned-income tax credit (EITC), which has helped millions of families stave off poverty.

About half of these households don't pay federal income tax simply because their incomes are low. More than one-fifth are retirees who benefit from tax breaks for seniors, including an exemption for most Social Security benefits. And another one-seventh are working families with children whose income tax liability is eliminated because of the child tax credit, the EITC, or the child and dependent care credit. Together, these three groups of taxpayers account for almost 90 percent of the households that pay no federal income tax.

If you want to talk about "fairness", you might want to pick a different topic.

I supposed one could come up with a Mark to Market scheme where I'm only taxed on the marginal gain from one tax period to the next...but that only slows the selloff of my core assets, doesn't it? But the key question is, would this go the other way...

...meaning if my XYZ stock dropped to $5 a share...would the government issue me a refund or a massive loss carryforward?

All legitimate questions, and valid concerns about whether taxes on unrealized income can practically be implemented.

But none of those objections invalidate the central argument - which is that if your shares increase from being worth $1K to being worth $10K, you have earned money on your investments. Your earnings are not realized taxable income as currently defined - but they are not zero.

Most of the largest fortunes in the U.S. have been accumulated this way. People generally don't become billionaires by having a billion dollars or more in taxable salaries over the course of their careers. They become billionaires through the appreciation of assets. Which means that Biden is correct, in that billionaires generally don't pay very much tax on the money they've earned. They do pay tax on the portion of the money they've earned that takes the form of realized income, but given how small a proportion that typically is, their overall tax contribution is very small as a proportion of their overall earnings.

But none of those objections invalidate the central argument - which is that if your shares increase from being worth $1K to being worth $10K, you have earned money on your investments. Your earnings are not realized taxable income as currently defined - but they are not zero.

And this is where the left goes off the rails and veers into wealth taxes. I suppose a state could do that but then the richest would just…leave. Washington is learning that right now.

Which means that Biden is correct, in that billionaires generally don't pay very much tax on the money they've earned.

Language sleight of hand alert!

Sorry, I don’t grant this point. Unrealized income is not recognized as taxable income. Either we have fixed accounting rules or we don’t.

"Unrealized Income"

I'm sorry.

but take you and me out of it.

Where is the most unrealized income? Go by your gut, and go by simple income statistics by state.

Would a BIG TAX on unrealized profits on say - Nvidia, Microsoft, Facebook etc......hurt people in New York or Austin or Seattle more? Or would they be sitting around in Alabama crying in their grits about all the great unrealized stock market profits they have to pay tax on.

Make them pay on their unrealized gains. Let Millennials know - while they call us mean and racist- that their retirement savings are now subject to this tax also, and that it's time to brownbag Oscar Mayer sandwiches and ditch the organic guac.

Punch the S/P500 a bit hard.

They'll bow down to make it stop and when they do, I got dibs on AOC.

I know we aren't willing to do it. And I see why Blue will win over Red - again in this country.

I'm to the point - if we're gonna lose, let's just call it now and get it over with.

Sorry, I don’t grant this point. Unrealized income is not recognized as taxable income. Either we have fixed accounting rules or we don’t. - Dope

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Also a factor but never mentioned is all the job creation and associated taxation of worker wages that the now rich guy was responsible for along the years in expanding his business and building the value that is now coveted by the tax and spend liberals.

And this is where the left goes off the rails and veers into wealth taxes.

But Al has not gone off the rails and veered into wealth taxes, you have veered off.

ALL Which means that Biden is correct, in that billionaires generally don't pay very much tax on the money they've earned.

Dope: Language sleight of hand alert!

Sorry, I don’t grant this point.
Me. Here you veer off and make the claim that Al is claiming unrealized income is taxable income - see below


Dope: Unrealized income is not recognized as taxable income.

But Al never said anywhere in your conversation that unrealized income is taxable income. He's basically saying that "unrealized income" has the word "income" in it because we recognize it is "income" while it isn't taxable. He grants there are problems in taxing it.


Either we have fixed accounting rules or we don’t.

This is normal Dope. Mischaracterize/ misstate what the person you are talking to is saying, then grandstand om that mischaracterization/misstatement.

Language sleight of hand alert!

Not at all. I've been very careful in this thread to clarify that when people earn money from appreciated investments that it is not recognized as taxable income under the U.S. code.

But, again, that doesn't mean it doesn't exist. That doesn't mean that people don't actually earn money through appreciating assets. Most of the largest fortunes in the U.S. were accumulated primarily this way, and (as a general rule) anyone who is a billionaire has earned almost their entire fortune that way.

So, no, Biden is correct that billionaires generally don't pay very much tax on the money they've earned. I've been quite clear in acknowledging that the reason they don't pay very much tax on the money they've earned is because it's not subject to taxation, as it isn't realized income. But that doesn't mean that they haven't actually earned those billions of dollars. They have. And they haven't paid very much in taxes on those vast fortunes. Which means it is a legitimate policy point to note that the tax code treatment of those earnings doesn't result in an especially fair outcome.

Which means it is a legitimate policy point to note that the tax code treatment of those earnings doesn't result in an especially fair outcome. - albaby

-----------------

Isn't it more of a timing thing, than a fairness thing? Consider two neighbors in a nice subdivision living the same basic life style, nice house, couple of kids, a nice vacation every year, maybe a boat in the driveway. Good solid middle class people and lifestyle. Both earn a good living and pay the associated taxes. Their life style is supported by earned (W-2) income only. Nothing unfair from a taxation standpoint so far.

The two neighbors continue their more or less equivalent lifestyle over the years, but one very savvy neighbor, sold his boat and began periodically buying a few shares of Apple, Nvidia, etc. By the time both neighbors reach age 50, the savvy neighbor has a brokerage account containing $1,000,000 of unrealized appreciation.

Has the savvy neighbor benefited in some unfair way? So far, that unrealized appreciation has not benefited the savvy neighbor in any tangible way. If you compare the two neighbors, their life style and taxation are more or less equivalent. But for sake of this discussion, one key difference is that if you look in Mr. Savvy's desk drawer there is brokerage statement with some numbers on it.

When Mr. Savvy decides to sell some stock and buy an even bigger boat than the one he sold years ago, then there will realized gains that will be taxed at that time as it should be.

My point is unrealized gains are in the abstract and will remain so until accessed for some other purpose. That is when current tax code collects the taxes due and that seems fair to me. If there is any unfairness, it would be forcing Mr. Savvy to pay taxes now in real dollars today for abstract future gains that may or may not be realized. Until that boat is in his Driveway. Mr Savvy should not be taxed on the potential of him buying it.

"But none of those objections invalidate the central argument - which is that if your shares increase from being worth $1K to being worth $10K, you have earned money on your investments. Your earnings are not realized taxable income as currently defined - but they are not zero.

Most of the largest fortunes in the U.S. have been accumulated this way. People generally don't become billionaires by having a billion dollars or more in taxable salaries over the course of their careers. They become billionaires through the appreciation of assets. Which means that Biden is correct, in that billionaires generally don't pay very much tax on the money they've earned. They do pay tax on the portion of the money they've earned that takes the form of realized income, but given how small a proportion that typically is, their overall tax contribution is very small as a proportion of their overall earnings."

The solution might be to tax consumption rather than income or assets (for everyone of course). We don't care how much you earn or have, but we'll have our share when you use it.

Of course, the rich might just spend it abroad instead, but import taxes and a modified FATCA could take care of that.

"When Mr. Savvy decides to sell some stock and buy an even bigger boat than the one he sold years ago, then there will realized gains that will be taxed at that time as it should be."

BHM, intercst on TMF talks about this a lot, his sarcastic comment about "Only suckers work for a living" rings true in a lot of ways. Long term Capital Gains are treated much more favorably than W2 income. Qualified Dividends are treated more favorably than W2 income. I'm not very savvy with the TMF search function, so I couldn't find his post, but he gives an example of how a married couple living off of long term capital gains can pay little or no Fed tax, while a married couple making the same in W2 income will be in the 20% + tax bracket ( not an exact percentage number, going off of memory ). This sure sounds like a rigged tax system to me, lol.

Probably like you, I learned enough to gain wealth by taking advantage of how the tax code favors investors over wage earners. And I don't really agree with the premise that investors are treated better tax-wise because they are powering the growth of innovation ( not saying that is your premise, but rather it's what I always hear as a reason for why Capital is treated more favorably than W2 ). Most W2 earners wages are being spent, this money is powering the economy and growth every bit as much as people who invest in stock market.

Until that boat is in his Driveway. Mr Savvy should not be taxed on the potential of him buying it.

Why not? If one neighbor earns $1M in wages, and the second neighbor earns $1M through appreciate investments, they've both earned $1M regardless of whether either buys a boat or not. The $1M reflected in Mr. Savvy's brokerage statement is no less real than the $1M reflected in the neighbor's bank statement. They both have the same amount of wealth - something that is readily apparent if the neighbor takes his $1M in dollars and invests it in the same stocks as Mr. Savvy, so they both have $1M in the same securities, just with a different basis. The neighbor's wealth hasn't dropped by $1M simply because he invested in the market, subjecting his assets to some non-zero risk of falling.

Unrealized gains aren't "abstract." They are real, concrete increases in your wealth - and that wealth increase isn't zero just because it's held in stocks with a low basis instead of a bank account (or an after-tax portfolio with a high basis).

So, no, Biden is correct that billionaires generally don't pay very much tax on the money they've earned.

Other than the part about it not counting in the US tax code and not how we do things, sure, he's correct.

But that doesn't mean that they haven't actually earned those billions of dollars. They have. And they haven't paid very much in taxes on those vast fortunes. Which means it is a legitimate policy point to note that the tax code treatment of those earnings doesn't result in an especially fair outcome.

Not really, and here's another objection I'm going to raise: "Fairness". Is it "fair" that a relatively small number of people pay almost all of the taxes in this country?

https://www.ntu.org/foundation/tax-page/who-pays-i....

Over the past several decades, lower income earners' share of income taxes has steadily grown smaller as the burden was shifted more and more to the wealthier. These trends stand in stark contrast with the rhetoric about whether people are paying their “fair share.”

The data should inform policymakers that when people are allowed to keep more of their own money, they prosper, move up the economic ladder, and contribute a larger share of the nation’s income tax bill.

Indeed. In 1980, the top marginal rate was 70%. The wealthiest 1% paid 19.3% of all income taxes.
Today, the top marginal rate is roughly half that (37%) and the top 1% now pay 45.8% of all income taxes (2021 data).

"Fairness" is a moving goal post, and doesn't necessarily mean what Joe Biden wants it to mean.

My point is unrealized gains are in the abstract and will remain so until accessed for some other purpose. That is when current tax code collects the taxes due and that seems fair to me. If there is any unfairness, it would be forcing Mr. Savvy to pay taxes now in real dollars today for abstract future gains that may or may not be realized. Until that boat is in his Driveway. Mr Savvy should not be taxed on the potential of him buying it.

It gets even better. Let's take Mr. Savvy and his other neighbor, Mr. Party.

Mr. Savvy, in addition to buying AAPL, NVIDIA, etc. also chose to buy his house. Over the course of his next 30 years Mr. Savvy made his mortgage payments on time and dutifully paid his property taxes.

Mr. Party went the other way, and rented his home the entire time. He paid no property taxes but did grumble when his rent was periodically increased so as to help his landlord cover the tax.

Is it "fair" that Mr. Savvy should be taxed on the appreciated value of his home? He is in fact paying more property taxes as the assessed value of his home rises.

Meanwhile Mr. Party votes in politicians that want to impose rent control.

BHM, intercst on TMF talks about this a lot, his sarcastic comment about "Only suckers work for a living" rings true in a lot of ways. Long term Capital Gains are treated much more favorably than W2 income. Qualified Dividends are treated more favorably than W2 income. I'm not very savvy with the TMF search function, so I couldn't find his post, but he gives an example of how a married couple living off of long term capital gains can pay little or no Fed tax, while a married couple making the same in W2 income will be in the 20% + tax bracket ( not an exact percentage number, going off of memory ). This sure sounds like a rigged tax system to me, lol.

Really rich people don't even pay capital gains. If you're Warren Buffet, you don't pay any taxes because you employ the "Buy, borrow or die" strategy. The WSJ laid it out:

https://www.wsj.com/articles/buy-borrow-die-how-ri...
https://archive.is/ew1Br

For borrowers, the calculation is clear: If an asset appreciates faster than the interest rate on the loan, they come out ahead. And under current law, investors and their heirs don’t pay income taxes unless their shares are sold. The assets may be subject to estate taxes, but heirs pay capital-gains taxes only when they sell and only on gains since the prior owner’s death. The more they can borrow, the longer they can hold appreciating assets. And the longer they hold, the bigger the tax savings.
“Ordinary people don’t think about debt the way billionaires think about debt,” said Edward McCaffery, a University of Southern California law professor who says he coined the buy-borrow-die phrase. “Once you’re already rich, it’s simple, it’s easy. It’s just buy, borrow, die. These are planks of the law that have been in place for 100 years.”,

BBD strategies involve taking out loans against the unrealized gains they have from other assets. If you have a stock that in a hot market is rising 5-6% then you're better off keeping it (and thus not paying capital gains on it) and taking out a loan at an interest rate less than that.

Why not? If one neighbor earns $1M in wages, and the second neighbor earns $1M through appreciate investments, they've both earned $1M regardless of whether either buys a boat or not.

Because one is realized income (the hard cash is in the checking account) and the other one is unrealized income (there is no cash in the checking account).

The bottom line is cash. Did some get credited or debited from an account?

They both have the same amount of wealth

Do they? What if Mr. Savvy's "wealth" is tied up in a start up with a Beta of 4?

Other than the part about it not counting in the US tax code and not how we do things, sure, he's correct.

But that's the entire point he was making. It's an argument for changing how we do things, because the US tax code currently allows nearly all of the earnings that billionaires accumulate to escape taxation.

Is it "fair" that a relatively small number of people pay almost all of the taxes in this country?

It wouldn't be if that were true....but it's not. One of our major taxes is very progressive - the U.S. federal income tax. Most of our taxes are far less progressive, and many are regressive (FICA, sales taxes, property taxes, etc.). Which is part of the reason why the federal income tax is designed to be especially progressive - but the federal income tax isn't the only tax, and doesn't even make up the majority of taxes that are paid in the U.S.

But that's the entire point he was making. It's an argument for changing how we do things, because the US tax code currently allows nearly all of the earnings that billionaires accumulate to escape taxation.

"Fairness" is a bad argument, as I've pointed out. Greed and envy as a policy foundation aren't good ways to go.

Want to make the tax code more "fair"? Nobody will like this answer: Make everyone pay at least $1 in net taxes.

It wouldn't be if that were true....but it's not. That's not what the numbers say.

One of our major taxes is very progressive - the U.S. federal income tax. Most of our taxes are far less progressive, and many are regressive (FICA, sales taxes, property taxes, etc.).

Moving goal posts alert, Batman! :)

Do they? What if Mr. Savvy's "wealth" is tied up in a start up with a Beta of 4?

In the hypothetical, Mr. Savvy's wealth was in publicly listed companies like Apple and Nvidia. It wasn't "tied up" in anything.

Money invested in the stock market is subject to some degree of risk from day to day - but that's true whether the invested funds are after-tax earnings (neighbor earns a million and then invests in the market) or reflect accumulated capital gains (Mr. Savvy has a million invested in the market grown from long-ago investments). The only difference is the basis that's used for tax calculation - in terms of the wealth of the individuals, both brokerage accounts identically contain $1M in stock.

Mr. Savvy doesn't have zero wealth or earnings because his money is invested in the stock market. It's not abstract, it's not non-existent, it's not "just numbers on a brokerage statement." Regardless of whether those shares have appreciated to their current level, or if Mr. Savvy had bought them yesterday. Marketable securities aren't identical to cash, obviously, but that doesn't mean their value is zero or that the wealth you accumulate through those securities doesn't exist until you convert to cash.

Moving goal posts alert, Batman! :)

How is that moving the goal posts? FICA is part of the tax code, and is just as much a federal tax as the income tax. And part of the reason we don't require everyone to pay non-trivial amounts of federal income tax is because we have a system of government where states are separate sovereign entities that provide a lot of services, that get paid for through regressive forms of taxation like sales and property taxes. Which taxes, BTW, are also reflected in the U.S. tax code.

If you have multiple taxing entities, you'll get bad policy answers if you look at separate taxes entirely in isolation, rather than considering taxation systems as a whole.

Unrealized gains aren't "abstract." They are real, concrete increases in your wealth - and that wealth increase isn't zero just because it's held in stocks with a low basis instead of a bank account (or an after-tax portfolio with a high basis).

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I guess we will have to disagree. Money has no value until its purchasing potential is unlocked by paying the taxes due on the unlocking.

In the hypothetical, Mr. Savvy's wealth was in publicly listed companies like Apple and Nvidia. It wasn't "tied up" in anything.

Unless it's in cash, it's "tied up". That's the definition of an investment, either short term or long term.

How is that moving the goal posts?

Because the discussion is about the federal income tax. (You introduced FICA, state and other things). They're covered in different areas.

If you want to means test Social Security, you can do that.

If you have multiple taxing entities, you'll get bad policy answers if you look at separate taxes entirely in isolation, rather than considering taxation systems as a whole.

But this is what we have. Taxing wealth (which is what Biden is ultimately going for) is a horrible idea.

Money has no value until its purchasing potential is unlocked by paying the taxes due on the unlocking.

Sweet! In that case, would you mind transferring to me - for free - all of your wealth in appreciate assets?

I mean, that's just crazy. If you bought $100 in shares of Apple at the IPO, it would be worth about $43K today. Are you telling me that in that scenario those shares have no value until you actually pay the taxes?

Unless it's in cash, it's "tied up". That's the definition of an investment, either short term or long term.

So what? Given the trivial transaction costs involved with converting stock in publicly-traded companies to cash - you probably won't even have to pay a commission - it's still worth almost exactly the same as cash at any given time.

Whatever (minor) reduction in value comes with the trivial loss of liquidity of being in easily converted marketable securities does not reduce the value of the assets to zero. Or even much at all.

Because the discussion is about the federal income tax.

Biden's quote didn't say the federal income tax. He said federal tax.

But this is what we have. Taxing wealth (which is what Biden is ultimately going for) is a horrible idea.

We're not in Dr. Pangloss' best of all possible worlds. Just because this is what we have doesn't mean it can't be improved. There are a lot of problems with wealth taxes, but that doesn't mean that the exemption of most billionaire earnings from effective taxation isn't a problem or that we shouldn't try to explore other measures to mitigate how low their proportionate tax burden is.

BBD strategies involve taking out loans against the unrealized gains they have from other assets. If you have a stock that in a hot market is rising 5-6% then you're better off keeping it (and thus not paying capital gains on it) and taking out a loan at an interest rate less than that. = Dope

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It's not just the uber-wealthy either. Average Joe homeowners sometimes employ a very similar strategy when they hold on to a low interest fixed mortgage even though they have investments that could pay it off but don't because the investment return exceeds the mortgage interest rate.

So what?

So what? You can't pay bills without cash someplace. This is the crux of why wealth taxes are so bad: one has to take on debt elsewhere to pay for the appreciation in paper assets that Joe Biden would tax.

It's not just the uber-wealthy either. Average Joe homeowners sometimes employ a very similar strategy when they hold on to a low interest fixed mortgage even though they have investments that could pay it off but don't because the investment return exceeds the mortgage interest rate.

100%! There's zero reason to pay off a home mortgage right now if you refinanced before rates went up.

Biden's quote didn't say the federal income tax. He said federal tax.

And you brought up State taxes...

We're not in Dr. Pangloss' best of all possible worlds. Just because this is what we have doesn't mean it can't be improved. There are a lot of problems with wealth taxes, but that doesn't mean that the exemption of most billionaire earnings from effective taxation isn't a problem or that we shouldn't try to explore other measures to mitigate how low their proportionate tax burden is.

In the aggregate they don't have a low proportion, as the data shows. Wealth taxes are horrible disincentives.

In the aggregate they don't have a low proportion, as the data shows.

They do. They pay a much lower proportion of their earnings in federal taxes than is typical, because unlike nearly everyone else in the country their earnings are almost entirely in the form of unrealized capital gains. Everyone else has to pay social security and medicare and income taxes on their wages and salaries; billionaires accumulate their wealth through appreciated assets.

So what? You can't pay bills without cash someplace. This is the crux of why wealth taxes are so bad: one has to take on debt elsewhere to pay for the appreciation in paper assets that Joe Biden would tax.

All valid points, but it doesn't make their earnings any less earnings. If your $1K in Apple stock appreciates to $10K, you will need to take an extra step in order to use your additional wealth to pay bills - but it doesn't mean that you haven't earned anything on your investments.

Sweet! In that case, would you mind transferring to me - for free - all of your wealth in appreciate assets?
- Albaby

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Sure, provided we had an ironclad agreement that you would give my shares back to me anytime I asked.

And one more thing, just for my peace of mind, while you hold my assets for eventual return to me, you will make regular filings with the Feds and comply with all SEC and FINRA regulations and oversight. In a very real way, the Albaby Wealth Holding Company would function a lot like my Vanguard Account.

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Are you telling me that in that scenario those shares have no value until you actually pay the taxes? - albaby

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Good Point. No doubt there is "value" to possessing something that can be converted to cash when you need to buy something. This is just really semantics, so whatever you call it, it revolves around established terminology of realized vs unrealized gains and their relation to taxable income.

They do. They pay a much lower proportion of their earnings in federal taxes than is typical,

I'm talking about the total percentage of federal income tax paid. The top 10% pay a very disproportionate amount.

Everyone else has to pay social security and medicare and income taxes on their wages and salaries; billionaires accumulate their wealth through appreciated assets.

FICA taxes are paid via wage deductions; technically if someone never has wages they never pay, yes.

All valid points, but it doesn't make their earnings any less earnings. If your $1K in Apple stock appreciates to $10K, you will need to take an extra step in order to use your additional wealth to pay bills - but it doesn't mean that you haven't earned anything on your investments.

And if the Apple stock goes to $500, do you get a tax refund?

No doubt there is "value" to possessing something that can be converted to cash when you need to buy something. This is just really semantics, so whatever you call it, it revolves around established terminology of realized vs unrealized gains and their relation to taxable income.

This is the crux of the debate, what counts as "income". The democrats see unrealized gains as the next frontier of money they can grab.

Me,. I say go for it. Redefine paper gains as actual gains and while they're at it they can explain why IRA's and 401(k) accounts can now be taxed at their appreciated values, payable now.

Sure, provided we had an ironclad agreement that you would give my shares back to me anytime I asked.

No way!

The whole point was to test the proposition that the appreciated value of an asset wasn't really worth something until it was converted to cash. Which obviously isn't true, which is why you wouldn't give me your shares unless you could get them back. If they lacked value, you wouldn't care - but obviously they do have enormous value, even if they haven't been converted to cash.

It's not just semantics, though. It's pointing out that some people - including nearly all billionaires - are able to earn a tremendous amount of money while paying federal taxes at a much lower rate than the average salaryman. It's just not correct to say that they haven't actually earned anything, simply because under the current tax code those earnings are excluded from realized taxable income.

And if the Apple stock goes to $500, do you get a tax refund?

You would at a minimum have a tax loss - exactly the same as if you had bought $10K of Apple stock with money earned from a wage, and it then went to $500.

Again, I agree with you that the mechanics of a wealth tax are difficult and perhaps unsolvable - which can be true at the same time as billionaires earning a lot of money through the appreciation of their assets without having to pay the same proportion of taxes that everyone else has to pay when they earn money. It is more complicated to tax earnings that are acquired through appreciating assets, but that does not mean those earnings don't exist.

And if the Apple stock goes to $500, do you get a tax refund?

This is why, from a cash flow perspective, taxing unrealized gains would create a nightmare. A good year in the markets, and taxes paid would run high. A bad year in the markets, and revenue would dry up. To some extent that's probably how things are now, but it would be many times worse.

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?

Plus, it's one thing when someone holds a publicly traded stock like Apple. It's easy to know what the value is on any given day. But what about someone who invests in a non-publicly traded partnership that invests venture capital in non-publicly traded businesses, or real estate? Those are not so easy to value year after year. It would be another nightmare. It could certainly create a lot of jobs trying to keep tabs on them all. :-)

I have no solution. It doesn't seem "fair" to not tax unrealized gains, but I think taxing them might create more problems than it solves.

It's not just semantics, though. It's pointing out that some people - including nearly all billionaires - are able to earn a tremendous amount of money while paying federal taxes at a much lower rate than the average salaryman. It's just not correct to say that they haven't actually earned anything, simply because under the current tax code those earnings are excluded from realized taxable income.

You're forgetting something else: How stock grants actually work.

Let's say I work for XYZ company and my compensation package is a mix of salary, bonus and stock (this is how the tech industry works).

My salary is $100,000 and my bonus is $20,000. I pay taxes on the combined $120,000 at whatever marginal rate that is.

But let's say I also receive $100,000 in stock payable to me over 4 years and let's say that XYZ is currently trading at $10/share. That means my total grant is 10,000 shares and I get 2,500 this year, 2,500 next year, etc.

That means I earned an extra $25,000 in income. I pay tax on that. Usually what companies do is 'sell' some of the granted shares on your behalf to cover the tax. I would therefore get 2,500 shares minus however many it took to pay the current year's tax bill. For laughs let's say the tax rate is 20% and so they sold $5,000 worth of shares (500) to pay the tax. I net out with 2,000 shares.

Let's further say that XYZ is a growing company and next year's stock price is $20. That means my 2,500 awarded shares turn into $50,000 in additional income...so they sell more shares on my behalf to pay that year's tax. This time they have to sell 500 shares to pay my $10,000 tax bill. I net out with 2,000 shares again.

My total paper gain is $20 x 4,000 shares = $80,000.

Should I have to pay tax on that?

I then hold

And btw I checked what my outfit holds back on stocks - because it counts as a short term capital gain it's taxed at your marginal rate, not the long term cap gains rate.

It doesn't seem "fair" to not tax unrealized gains, but I think taxing them might create more problems than it solves.

All the more reason to NOT try to tax gains while they reamain UNREALIZED but impose taxes on REALIZED gains without the "discounted tax rate" of 15% on capital gains (20% above $518,900). It could be argued that some differential tax rate between "short term" and "long term" gains might help discourage day-trading that goes far beyond what's required to provide liquidity and price transparency. I might argue even one year is too short a period to be considered "long term." Maybe two or three.


WTH

If there is any unfairness, it would be forcing Mr. Savvy to pay taxes now in real dollars today for abstract future gains that may or may not be realized. Until that boat is in his Driveway. Mr Savvy should not be taxed on the potential of him buying it.

Nice, I like it. Just had carpal tunnel surgery, so this is one handed. Just prior to the Civil War, this unfairness was discussed under the term the Rentier class. People who did no work and made their money from renting, interest, and appreciation on assets. Modernly they are a huge lobby and have managed to convince people it would be very unfair to tax them on unrealized gains.

Conversely, they also manage to convince people capital gains should be taxed at a lower rate because if they had been paying taxes all along, it would be at a cheaper rate. As a young man, when I asked, that was the explanation for the cheaper capital gains rates. :)

These are the same people who pay inheritance lawyers a lot of money to figure out how to encumber their businesses and property so that the least amount of inheritance tax is paid.

The point is that never paying taxes, or paying a mere pittance on unrealized gain even if there are transactions is very real and goes on every day. This happens to our detriment. The ability of the wealthy to self deal by influencing law is far greater than our ability to hinder it.

My total paper gain is $20 x 4,000 shares = $80,000.

Should I have to pay tax on that?

Maybe! After all, you've earned an extra $80K that you didn't have before! You're richer than you were before. If you earned that amount of money in almost any other way, you'd have to pay tax on it.

As with all "should" questions, it's complicated - because there are logistical and legal issues that make any system requiring tax on such earnings difficult, if not impossible. But you've earned $80K in income on your investments this year, and we generally expect that people won't get a pass on paying taxes on what they earn just because they earn it in a particular way.

Maybe! After all, you've earned an extra $80K that you didn't have before! You're richer than you were before. If you earned that amount of money in almost any other way, you'd have to pay tax on it.

Sweet! So I have to sell even MORE shares to pay my "Fair share". Love it. Actually...how about no?

But you've earned $80K in income on your investments this year, and we generally expect that people won't get a pass on paying taxes on what they earn just because they earn it in a particular way.

That's the rub. I've not "earned" anything...until I turn it into cash.

Sweet! So I have to sell even MORE shares to pay my "Fair share". Love it. Actually...how about no?

But that's what anyone else would have to do. If I earn $80K working for my law firm, I don't get to invest it and get $80K worth of shares. I have to pay taxes on what I earned, which means I get to buy fewer shares.

That's the rub. I've not "earned" anything...until I turn it into cash.

Why? Of course you've earned something. You now have $80K more worth of assets than you did before. Whether you sell it or not, you've still had $80K worth of earnings on your investments. You would never act as though you hadn't had any investment earnings - you would never sell (or barter or trade) those shares for zero value.

But that's what anyone else would have to do. If I earn $80K working for my law firm, I don't get to invest it and get $80K worth of shares. I have to pay taxes on what I earned, which means I get to buy fewer shares.

So I'm punished for picking a different career choice, is that it?
When do we get to start nailing service employees for not reporting tips and/or paying taxes on them?

Why? Of course you've earned something. You now have $80K more worth of assets than you did before. Whether you sell it or not, you've still had $80K worth of earnings on your investments. You would never act as though you hadn't had any investment earnings - you would never sell (or barter or trade) those shares for zero value.

Paper assets /= cash. It all comes down to that.

How did the person with $1M in investments GET $1m in investments?

Answer: they made a lot of income along the way that was already taxed, they invested some/most of what was left in whatever - a business that created jobs to pay others so all those people pay taxes -, or stocks or bitcoin or gold or whatever.

And when they sell it in a taxable account, they'll get taxed on the gain (at a lower rate, yes). If we withdraw it from a retirement account, we get taxed on it at regular tax rates, and we get penalties on top for an early withdrawal.

So this would tax all the individuals who were lucky enough to invest in businesses that had appreciating values on the appreciated value of their assets? Wow.

Think of the megaton-scale blast radius of logical consequences of behavior people and businesses will go to to avoid anything like that. And when would it be done? Annually? On the change in investment value since last year? Would they be allowed a refund the next year when there's a bear market? Hahahahaha. On and on.

Hell, why not start taxing everyone who has an appreciated house that hasn't sold it yet?

Or get taxed on the cash they've saved instead of getting taxed on appreciated stock investments?

The PROBLEM is the businesses that have phony tax writeoffs, subsidies and tax credits written into the tax code while we sleep. Like contractors who can write off the cost of a new pickup truck as a business expense, or oil companies that can book billions of dollars of after-tax profit a quarter because they helped double the spot price of oil while getting subsidies to not spend as they're supposed to on cleaner sources - which we littles get to pay for dearly in heating bills.

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?

Yeah. How would this work in practice. In the simplest case, say, I have plenty of liquid cash in a bank account to pay any future taxes, and have no other taxable income except interest earned on that cash.

But I also have 500k in a publicly traded stock.

In 2024, that stock appreciates in value to 1 million and I don't sell any of it. So, my unrealized gain is 500k, and I pay some tax on it.

In 2025, the stock depreciates in value back to 500k. So I pay no tax, but then do I get to "bank" that loss to offset next year's unrealized gain?

In 2026, the stock again doubles in value to 1 million and I have to pay tax on the 500k unrealized gain. Do I get to use the loss from the previous year to offset it?

Rinse and repeat.

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.

“Money has no value until its purchasing potential is unlocked”.

Absurd. Money is both a store of value and a medium of exchange. If I am a billionaire and my underlying assets are appreciating at 15% per year, and I can get a loan on those assets at 5% a year, I could live like a king on nothing but debt. Zero income, zero taxes, and all the Net Jet miles borrowed money can buy.

>>“Money has no value until its purchasing potential is unlocked”.<<

Absurd. Money is both a store of value and a medium of exchange. If I am a billionaire and my underlying assets are appreciating at 15% per year, and I can get a loan on those assets at 5% a year, I could live like a king on nothing but debt. Zero income, zero taxes, and all the Net Jet miles borrowed money can buy. - Phoolish

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By that line of reasoning, potential energy and kinetic energy are the same thing...

No, but they are two different forms of energy. And one is relatively easily converted into the other.

No, but they are two different forms of energy. And one is relatively easily converted into the other. = 1pg

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Yes, just as realized and unrealized gains are different forms of gains. The act of pledging unrealized gains as loan collateral is the act that unlocks the value of that collateral. Until then, the unrealized gains exist in a potential state.

Another analogy might be, your unrealized gains are sort of a Schrodinger's asset. You don't rally know its value until you open the box and convert into cash by selling or pledging as collateral. Any asset still in the box may have some value but it is inaccessible by you.

Absurd. Money is both a store of value and a medium of exchange. If I am a billionaire and my underlying assets are appreciating at 15% per year, and I can get a loan on those assets at 5% a year, I could live like a king on nothing but debt. Zero income, zero taxes, and all the Net Jet miles borrowed money can buy. - Phoolish

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By that line of reasoning, potential energy and kinetic energy are the same thing...


NO, remember the islanders with the big circle of stone money? They'd stick it into a dugout and paddle it from island to island when it changed hands. One day they slipped up and it sank to the bottom of the bay. Everyone knew it was there. Rather than stop the economy, they would simply reassign who owned the circle of stone at the bottom of the bay. Everyone knew it was there and who owned it.

NO, remember the islanders with the big circle of stone money? They'd stick it into a dugout and paddle it from island to island when it changed hands. One day they slipped up and it sank to the bottom of the bay. Everyone knew it was there. Rather than stop the economy, they would simply reassign who owned the circle of stone at the bottom of the bay. Everyone knew it was there and who owned it. - Lapsody

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Those were the Yap Islanders. Do you think them passing ownership around for that unseen stone at the bottom of the bay might be the very first use of an NFT?

Do you think them passing ownership around for that unseen stone at the bottom of the bay might be the very first use of an NFT?

Close, but I think the stone circle at the bottom of the bay has more value. You know it actually exists and there's potential to reclaim it.

Yes, the unrealized gains exist in a quasi-potential state. But, in physics (since you're using that analog) you have to account for all the energy. E=K+P (to put it simply).

So to get back to the finances, total earnings equals realized gains plus unrealized gains.

As albaby said, it would be a nightmare (possibly intractable) to account for that. But that doesn't make it any less real.

This thread is huge, and I haven't read all of it, so apologies if this has been mentioned.

Property taxes on houses are levied annually, doesn't matter if you buy or sell, if you live in the house you will pay property tax. The home/property value is "assessed" by comparing it to other similar properties, and a number is arrived at. If you sell the property for less than the assessed value, you do not get a refund of tax paid in excess. So it seems like a way could be come up with to tax a port.

I am not for taxing portfolios, the old saying that it's a "paper gain" is true, any gains can ( and do ) evaporate quickly when the market turns against us. I do not know a single person who just takes out a loan against their port so that they do not have any 1099R income tax to pay. I know Hedge Fund Managers have been know to do that, but that loophole should be closed shut with extreme prejudice.

I am for a tax on high frequency trading. I could be wrong, but I don't think HFT adds value to the market ecosystem. I think we can live without the liquidity that HFT is surely a part of providing. so if all the HFTers throw a fit and say that they'll take their ball and go home if they're taxed, I say good riddance.

There appears to be zero appetite in USA for anybody ( or any corporation ) to pay taxes. The Fed government is ravenous for tax $ flow. Heck, they could charge a 5 cent per share ( or whatever # come up with ) per stock transaction, and I wouldn't blink an eye at it, as long as it didn't get distorted with all kinds of special interest exemptions.

Taxes are a necessary "evil" in a civilized society, people need to be grown up about it.

Property taxes on houses are levied annually...The home/property value is "assessed" by comparing it to other similar properties, and a number is arrived at

Not everywhere. Here in California, for example, in 1978 a law was passed that limits annual increases in assessed property valuations to no more than 1% per year. So as long as the real estate market is going up, which is most years, they just tack on a 1% increase to the previous year's valuation. It has nothing to do with market value.

And what about the people investing in businesses, like venture capitalists? Those businesses can be tricky to value. For that matter, many businesses have unrealized value and can be sold. Would a business owner have to pay taxes not only on their income, but also on the increase/decrease in the value of their business each year?

While there's a case to be made that taxing unrealized gains would be "fair", it seems a logistical nightmare. I can't see it being done without armies of government-approved appraisers all trying to value all these properties and businesses, and as was mentioned earlier, works of art, baseball card collections, etc, etc.

Plus a big uptick in lumpy cash flow for tax revenues, depending on whether the markets went up or down each year. That would make budgeting even more challenging than it is already.

I think we can live with unrealized gains if we knew that ultimately the gain would be taxed, but there are ways to not pay tax and access to those ways are the forte of CPAs and Attorneys. So some of that gain is never taxed.

*is

While there's a case to be made that taxing unrealized gains would be "fair", it seems a logistical nightmare. I can't see it being done without armies of government-approved appraisers all trying to value all these properties and businesses, and as was mentioned earlier, works of art, baseball card collections, etc, etc.

Yes, I think it’s a dumb idea just based on the practicality of it, not to mention the after-the-fact enforcement which would be near impossible.

The easiest way to capture the revenue would be to eliminate the “stepped-up” basis for inheritance. Tax it just as though the original owners had cashed out and paid the tax. That would likely change some behavior as people spent more rather than husbanding it down to the last second so they can gift it to children or foundations or whatever, and it would put a relatively stable revenue source on tap for needs.

I know there will be some objections from the Harry Srs who want to pass the hardware store down to Harry Jr, but thems the breaks. Put Junior on the payroll early enough and let him save for the upcoming taxes, or have him take a loan and pay it off with the proceeds of the business which, after all, he’s getting for free.

I agree. No stepped-up basis. Even though I get to take advantage of it since 1poormom died last year. But it still shouldn't be.

Also, unearned income should NOT be taxed at a lower rate than earned income. It should be the same, or -arguably- higher. Though I personally think it should be the same rate no matter the source. As intercst used to say, [paraphrasing] the dumbest thing you can do financially is work for a living. You are taxed the most if you do. Let your money work for you instead. If you can keep ordinary income below ~$90K (joint) then any cap gains are tax-free. (That's also a rule that shouldn't exist, but it does.)

The easiest way to capture the revenue would be to eliminate the “stepped-up” basis for inheritance.

I think an even better way is to eliminate the favorable tax treatment of appreciated shares in charitable contributions.

I suspect that's where most of the really big accumulations of appreciated assets escape ever being taxed. Warren Buffet and Bill Gates and the like aren't giving their massive wealth to their heirs. They're giving them to foundations and charities and whatnot.

Someone upthread used the example of buying a boat and sticking it in the driveway as when money is really "earned," as opposed to being theoretical. It's an illustration of when someone's appreciated wealth actually gets used to benefit the individual, rather than just being numbers on a brokerage statement. That's an example of how an ordinary person converts intangible wealth into something that they want to enjoy - a thing or an experience in the real world.

But that's the sort of thing that "normies" (like anyone on this thread) spends their money on. If you're a billionaire, you won't (and can't) spend any significant portion of your wealth on things like that. What you'll be "spending" your money on are things like prestige, social standing, power, influence, connections, etc. "Things" that you can "buy" with charitable contributions, especially if you dump a big part of your wealth into a foundation that you control. You don't necessarily want to buy another boat - but you do want every mayor, U.S. Rep, governor, or Senator to return your phone call. You want your name on buildings and event programs and talked about positively in the press. You want people to change policy to match your preferences. You want to use your massive wealth to do things, not buy things - so you get to "spend" your massive fortune without it ever being taxed because donated shares don't get taxed on their appreciated value.

I think an even better way is to eliminate the favorable tax treatment of appreciated shares in charitable contributions.

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Agreed. There's a larger benefit to this approach besides putting significant wealth back into a taxable pool.

The creation of "charitable foundations" that, exactly like corporations for profit, can outlive their founder / patron indefinitely has TOXIC effects on democracy. It's bad enough that our form of corporate-friendly republicanism (small R there) favors the accumulation of unfathomable levels of raw economic power into the hands of ten or twenty individuals in a society of fifty million in the 1800s or 150 million in the 1900s or three hundred fifty million in the 2000s. That concentration of ECONOMIC power leads to concentration of POLITICAL power due to the corruption of campaign finance laws which favor "one dollar, one vote" over "one citizen, one vote". But far worse, the ability to transform an obscene concentration of wealth used for continued profit-making into an obscene concetnration of wealth used to pursue "charitable" goals as viewed by the founder is distorting the priorities and artificially narrowing the perspective of the larger public and hindering its ability to move society forward.

As an old example, consider the Ford Foundation. That organization might have a fairly benign profile as of 2024 but between the 1950s and 1970s, its attempts to promote democracy and economic opportunity led to bizarre partnerships with the CIA in Germany and in South America. The Ford Foundation worked with the University of Chicago to bring hundreds of students to the University to essentially be indoctrinated into its distorted view of "free markets" being more important than "free societies." As that mindset was brought back to South America, it resulted in numerous violent coups as perfectly functioning governments were replaced with autocrats more friendly to big business, free trade and less regulation of businesses in the absence of ANY support of those policies by the local public.

As a new example, consider the Bill and Melinda Gates Foundation. Even if you have a nuetral take on Bill Gates individually, why should someone who made tens of billions of dollars solving the software problems of 1980 with MS-DOS and the 1990s with Windows and Office be granted similar outsized influence on issues like public health or poverty? Even if one is willing to stipulate that Gates is incredibly smart and incredibly curious and willing to learn, allowing ONE ultra-rich genius to continue controlling such vast sums of money to solve the next generation of problems is the equivalent of doubling down after winning a billion dollars in the idea PowerBall lottery. The types of problems the world faces are so complex that NO single individual or organization CONTROLLED by one individual is likely to gain a lock on the ideas and intellect needed to solve them. Maintaining tax policies that foster these perma-foundations over DECADES is merely allowing the continued hording of economic resources in alternate forms that could better address the needs of the public if spread more widely throughout society.


WTH

Just playing Devil's Advocate:

The Gates Foundation does some amazing work. Gates sees charity as a series of problems to be solved, like an engineer would. So he is taking on sanitation and diseases, and from what I've read, he is solving problems and improving lives. Just as a "for example", he directed the development of a container that can keep medicine cold for days, so it can be transported into remote areas and still be effective. I forget now which vaccine he was trying to transport (polio?), but it had to be kept cold until delivery. His foundation solved that problem.

That doesn't mean that his vast wealth should not be taxed. But at least some foundations are doing real charitable work, and some consideration should be given to that.

Just playing Devil's Advocate: The Gates Foundation does some amazing work.

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That's actally why I used Gates as an example because I agree that he is trying to optimize the impact of his contributions in a somewhat scientific, results-oriented way and has some big successes. But for every rich Bill Gates, there's a Koch brother type counterpart, spending vast sums of money through "charitable contributions" to actualy support more of what they want for their business. For example, David H. Koch is one of the biggest backers of science programming on PBS. According to sources on the Internet, he's donated $18 million to support WGBH and Nova over 30 years. Impressive. Less impressive that he spent $68 million over the last 10-20 years spreading disinformation about climate change. Both Koch brothers were donating nearly $20 million per year in the 2010s to universities across the country to promote their educational agenda regarding economics and (de)regulation.

Here's another stab at my lottery metaphor about fostering ideas and creativity to advance society.

In my view, the combination of the world's current knowledge, scientific understanding and culture will always result in some imperfect state reflecting a combination of harms stemming from a range of factors... The totally unforseeable, the judgment calls and the totally forseeable. As technology advances and science and engineering combine to create some new technogy that EXPONTIALLY improves productivity and/or living conditions, any actors working in that "space" at that time in a capitalist society will likely enjoy EXPONENTIAL accumulation of wealth. We've seen it with every era of industrial advancement. Vanderbilt with railroads. Rockefeller with oil. Carnegie with steel. Ford with automobiles. Gates with computer operating systems. Page/Brin with search engine technology.

In each of those examples, those founders were extremely smart, insightful people who essentially held a lottery ticket in a larger economy that "paid off" and netted them a billion dollar jackpot. Great. Good for them. Good for the rest of us to be able to use what they invented or perfected. I have no problem with that. The problem is that once that actor wins that lottery, much of the operation of our political, judicial and social systems becomes HEAVILY weighted in their favor. That's bad enough if it helps them get away with crime or fraud that would normally put someone with less means in jail. The bigger problem is that that lottery winner's OPINIONS suddenly seem to count for many times more than average members of society. Even in areas not directly related to the areas of expertise in which they won their fortune. It's as though we suddenly allowed PowerBall winners to control the local news media in twenty cities. Why? Just because they have a billion dollars.

Bill Gates is a perfect good / bad example of this. He has tens of billions of dollars. He's technically a college dropout with an intense background in 1970s / 1980s era operating system design and 1990s era software business strategy. But he has no degree in medicine. The fact that he's devoted countless hours boning up on the topic and talking to people who DO know something about vaccines and vaccine delivery systems is a credit to his choice on how to spend his retirement. However, it seems dangerous to allow such continued concentration of wealth and influence on so few people and rely upon their best intentions when it is clear MANY in those positions not only won an economic lottery but extended their win through corrupt practices.

It's similar to the debate about "effective altruism," a concept of career management in which a person makes decisions about what jobs to take based upon a goal of maximizing their ultimate wealth that of course will be (eventually) given away for charitable purposes. The classic example would be posing a choice to a software engineer interested in "solving hunger" in Africa. Suppose that software engineer could choose between

a) working for $180,000 per year at Google for 20 years and accumulating $3.6 million, some of which could be given to a charity aiding hunger in Africa, or

b) getting on a plane and spending the next 20 years personally digging irrigation ditches across the African continent

Given that person's skills, (a) might be the better choice. The problem is that some who believe in EA believe it justifies nearly any action in the short term that creates more wealth, even actions whose short term harm can compound exponentially faster than the "good" that might eventually result when the EA converts a lifetime fortune into good deeds at the end of a career.

As I mentioned before, allowing the uber-rich to maintain their outsized influence on the rest of the "civic idea space" seems antithetical to the goals of a pluralistic democracy. Rather than Bill Gates trying to manage a process for funding five different efforts to perfect the delivery of polio vaccines, might a larger net benefit on worldwide health been achieved by spending $5 billion dollars to rebuild the 50 worst public high schools in the country and pay their teachers $100,000 salaries to attract people back into teaching, improve graduation rates and boost medical school enrollments by 1000 students?

It's impossible to know what's best for every possible billionaire but history seems to imply these concentrations of wealth are NOT good for society.


WTH

Taxes are a necessary "evil" in a civilized society, people need to be grown up about it.

People need to be grown up about it......yes! And this observation has far broader relevance than just taxes.

The Gates Foundation does some amazing work. Gates sees charity as a series of problems to be solved, like an engineer would. So he is taking on sanitation and diseases, and from what I've read, he is solving problems and improving lives.

In some ways, this is a bug, not a feature.

These charities/foundations will adopt their founders' ideas about what the public good is - which may not match up with what societies might determine for themselves, through little-d democratic processes, think the public good is.

Sometimes the choices they make are objectively terrible, from a public good perspective (say, donating huge sums to their Ivy League alma mater for a new building). But even if their charitable activities do contribute to the public good (developing a container for keeping medicines cold), those priorities aren't necessarily the ones that a broader cross-section of society would have chosen.

Again, this is their money - and if they want their money to reflect their vision for what would make the world better, they have every right to direct their charitable giving in that direction. But when tax policy ends up favoring/subsidizing those choices, it bleeds into public policy a bit more. Which is why revisiting the favorable tax treatment for these types of charitable donations is a possible solution to capturing unrealized gains.^^

Albaby

^^At least, in theory. In practice, the forces that would be arrayed against doing that would be so politically potent that it could never actually happen.

Taxes are a necessary "evil" in a civilized society, people need to be grown up about it.

Of course.
The resentment comes when the taxpayer sees how their
tax money is spent, for instance New York City supporting thousands of illegal aliens while their own in need citizens are shoved to the back of the line.

For lots of reasons, we do (and perhaps should) exclude unrealized asset gains from a formal definition of income subject to taxation - but an informal understanding of how much of billionaire's "earnings" are actually paid in taxes doesn't require us to pretend that massive increases in personal wealth in unrealized holdings don't exist.

First of all, the "estate tax" eventually taxes everything (over $11 Million, so essentially everything for a billionaire) at 40% when the billionaire dies. You can think of it this way:

When a billionaire dies,
1) for tax purposes, all unrealized gains are realized, write down that number and hand over 40% of it for estate taxes
2) Heck, while we're catching up on your deferred tax liability from having unrealized gains, write down all the rest of your wealth that you already paid taxes on, and hand over 40% of THAT TOO as estate taxes.

So dynastic wealth above $11 Million (approximate exemption level from estate taxes) meets a mighty headwind. Not as mighty as a communist revolution where excess wealth is confiscated and you usually wind up with famines killing millions of people because it turns out the people who owned the farmland actually knew a thing or three about farming it. But MORE mighty by far than the income tax, which limits itself to only taxing your income once, and then you can keep whats left over forever. Or actually not forever, as it comes up for re-taxation when you die under the estate tax.

But no, we have AI now which will know how to farm and we won't have to pay it (once we have confiscated it from OpenAI, Google, Facebook, Twitter, Tesla, etc etc etc, which we might should do under "capitalism" anyway). So suppose you are a neocommunist who believes that the good reasons you have for wanting to confiscate the wealth of people who are SO OBVIOUSLY more productive than you are will not result in bad consequences because you are a Good Person who, even though you can't figure out how to turn $10,000 into $10,001 with any reliability, will still be competent to chime in on how the population should feed, clothe, and shelter itself.

We still have all the foregone income from not leaving the money in the billionaires hands until they die!

Suppose we had incredibly fair rules that, more or less, prevented the accumulation of more than $10 million or so. Then when a young Elon Musk got paid out for selling Paypal, he would have continued buying McLaren's to play with rather than investing in Tesla.

So what, so a proto-billionaire doesn't invest in Tesla. Well first of all, Musk paid over $11 BILLION in federal taxes in 2021 after realizing SOME of his wealth in order to buy Twitter. If Musk had lived in a fair and just America, he never could have made the wealth that would enable him to pay $11 BILLION in taxes. That is money the federal government would not have to pay out as pork barrel payments to a bunch of necocommunists on welfare.

Thats right. By leaving incredible levels of wealth in the hands of the very tiny minority of people who can turn 10 million into 100, 100million into 1Billion, 1Billion into 10Billion, and 10Billion into 100Billion, the federal government reaps FAR MORE in tax income than if they interrupted that chain of wealth creation in the interests of fairness and justice.

I don't know about you, but I would rather have $2million wealth in an unfair system when Musk is worth 100,000X as much as I am, than to have $20,000 plus a social security check in a fair system where Musk (and Jobs and Brin and Page and Gates and Buffett and Bezos and that Facebook guy) were unable to amass unfair amounts of which allowed them to create ungodly amounts of wealth on which their employees have paid absolute tons of income tax and their customers who had their productivity enhanced by their products have paid another ungodly amount of income tax.

The thing nobody is talking about is that if you have a 40% estate tax, then you WANT the people who can turn 200Billion into 1Trillion to do so, because the amount you eventually harvest from them will be so insanely much higher than the amount you would harvest in a "fair" system that, well, if you could do math or weren't poisoned by envy you would never ever want to limit the growth of human produtivity and its consequent extension of our lifespans and elimination of povery.

Yeah, let Musk and Bezos and the other usual suspects manage the government's money for higher income while they are alive. They will do a MUCH BETTER JOB of that than would the government itself investing in Solyndra and hydrogen fuel cells.

Incoherently yours,
R:)

Most of the largest fortunes in the U.S. have been accumulated this way. People generally don't become billionaires by having a billion dollars or more in taxable salaries over the course of their careers. They become billionaires through the appreciation of assets. Which means that Biden is correct, in that billionaires generally don't pay very much tax on the money they've earned. They do pay tax on the portion of the money they've earned that takes the form of realized income, but given how small a proportion that typically is, their overall tax contribution is very small as a proportion of their overall earnings.

What an insanely myopic view. Name a multibillionaire accumulating earnings into some company she started. Now eliminate all of them who have done that without employing 100s of thousands of employees. Now eliminate all of them who have done it without creating BILLIONS of dollars of valuable products that their customers were enthusiastically overjoyed to receive at the prices they were sold for.

Damn it, you didn't hardly eliminate any any of those billionaires! So maybe you want to somehow account for all the productivity (and therefore income) enhancing products, all the savings on groceries, picnic tables, and clothing from the retailers, and yes, lets give them a little bit of credit for the income taxes that their millions of employees pay, and maybe a tip of the hat to the SALARIES their millions of employees live lives of quiet enjoyment off of.

You don't get to be a billionaire without providing at least a few billion in value to your customers, investors, and employees.
If you think a world without Microsoft, Walmart, Costco, Google, Apple, and Facebook is a better world than the one we live in then explain why all their CUSTOMERS who actually put their hard earned cash up disagree with you.

R:)

You don't get to be a billionaire without providing at least a few billion in value to your customers, investors, and employees.

True, but not especially relevant. Most people who are successful in business provide a ton of value to their customers, investors, and employees. They all have to pay taxes on the money they earn. There's no reason to let a handful of people escape paying the same type of taxes on their earnings as everyone else has to pay (who are almost all also contributing value) just because of the form in which they earn that money.

True, but not especially relevant.

Until you take away the capital they've generated. Then there's no new business that gets formed.

That's what leveling the playing field is all about - sawing everyone off at the knees "equally".

The resentment comes when the taxpayer sees how their
tax money is spent, for instance New York City supporting thousands of illegal aliens while their own in need citizens are shoved to the back of the line. - LM

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Yes, even though taxes are necessary, it is the wasteful spending that really aggravates the taxpayer the most.

Seeing their hard earned money, forcibly remitted to Uncle Sugar, only to see it pissed away on un-needed or frivolous things. Back in the days of my working in a Fortune 200, when it came to preparing next years budgets, you were challenged on proposed spending as being either for "must haves" or "nice to haves". With the US Government, they don't have to defend the frivolous, everything is a must have, and we end up funding things like that famous study of shrimp running on a treadmill.

Despite the regular ridicule of the pork tucked away in various spending bills, the practice continues as an almost in your face to the taxpayers. The spenders will say, "Yes but this is such a tiny percent of the federal budget, you should be ashamed for even noticing it." The position that this so called pork is "so tiny it doesn't matter" is a separate insult to the taxpayer besides the wasteful spending itself.

The more cerebral defenders will say, "Yes, but the pork is necessary as the medium of exchange by which consensus is formed, without pork, there will be gridlock." There may be some unfortunate truth to that. Sigh!

I am SHOCKED to discover that untaxed earnings are being accumulated by people investing in businesses! Round up the usual suspects!

The two party system seems to be a race to the bottom. When the Republican's nominated a boorish mean-spirited philanderer with a TV-trained relationship with the truth to be president in 2016, did the Democrats rise to the opportunity by being sure to nominate a centrist who could be a competent technocrat and protector of a great country? No, THEIR fringe figured it was open season on America and they could nominate the person who, somehow, deserved it most. In America, you do not rise to opportunities, you fall to them.

So in 2020 given a second chance, all the domocrats could provide that was even vaguely centrist but still acceptable to their fringe was a guy who had been too old for a while. And many of us, somewhat more of us than in 2016, thought this is a responsible alternative to a candidate who defined a "stolen election" as one that somebody else won. Surely, Biden would caretake and lead his party to pick a young (60 year old?) centrist candidate who could be kind to the less fortunate without sounding like an economic illiterate. Certainly his choosing Kamala Harris for VP was not a good sign, but strategically you gotta give something to the nut-fringe for their votes.

Jimmy Carter cursed America when he opined that:

All I want is the same thing you want. To have a nation with a government that is as good and honest and decent and competent and compassionate and as filled with love as are the American people.

A few million shy of half the electorate thinks that government should be lead by Donald Trump. Those who don't have as their only choice a Joe Biden, 4 years even olderer than he was too old last time, and carrying Kamala Harris as the heir apparent this time instead of just as a dangerously placed place holder.

So yay. We live in an America which is a Stupidity Contest, and nearly all of us are winners!

So what do we talk about?

1) The evils of corporate buybacks of their stock
2) The evils of not taxing rich people on the basis of what Forbes SAYS they are worth in order to gain clicks.

Meanwhile there are a small minority of us out here who are not surprised at all that when you retain wealth instead of spending it, you can invest it in things, and that at some point eventually Death and his midget twin Taxes will come for you AND your unrealized wealth. And that while we are waiting, reasonably competent people "save" their money (i.e., not spend it) for use later, and that that savings allows an economy which invests more and more and more into improving its ability to keep us alive and happy and warm and stylish and employed gainfully and sometimes, even healthy with increasing competence.

But of course, brought to you by the people who think policy is best made by threatening to not allow the government pay its debts, we have the idea that leaving wealth in the hands of people that DEMONSTRABLY KNOW how to invest it to increase it makes less sense than rousing a populist crowd of people who can't count up to one without picking their noses to come and take those savings away and use it to pay brown children to be mutilated when they express confusion about their identity.

At the risk of suggesting that some people know more than others, and that much of the success of the west has been, at least better than the communists have managed, we often choose the competent to do the things they are competent at over either government officials or gangs of populists who consider Math to be "fake news". But not always. In perhaps the greatest tradition of democracy, a right-wing know-nothing populism is most effectively countered with a left-wing know-nothing populism.

What's wrong with technocracy? What's wrong with having the many important things that government enables to be run by people who know how to make those things thrive and are so boring they are excited by the prospect of being allowed to do so? Why do we have to choose between Q-anon and the victimhood theory of value?

We'd probably be best off going a step further than allowing unrealized wealth to go untaxed. Robert Frank (among, I'm sure, many others) has suggested that we should have consumption taxes instead of income taxes. The way I envision that is, your realized income would go into accounts from where it could be invested in productive enterprises without being taxed. As long as you left that money and the money it earned in the account, no taxes would be due. But as soon as you removed $20 for a really good hamburger, you would pay consuption tax on $20. And when you removed $75,000,000 for a yacht, you would pay $75,000,000. I hesitate to say that these accounts would function very much like traditional IRAs, except that would only make sense if I was talking to a population of peopple so elite that they had some idea how traditional IRAs function around taxation.

Then WE THE PEOPLE would be the custodian's of the future wealth of the nation, including its future ability to consume and therefore future expected tax revenues. Instead of making sure my net worth never rose above $40,000 or whatever populist number eventually chills out the innumerate envy-addled masses, my net worth could rise as high as I could get it as long as I didn't spend it. With the realization that eventually Death and her evil twin Taxes would come for me and take many millions for taxes that would not have existed if I had not been allowed to invest on behalf of an ungrateful government.

I got to do my taxes, bye for now.

R:

RaplhCramden: A few million shy of half the electorate thinks that government should be lead by Donald Trump. Those who don't have as their only choice a Joe Biden, 4 years even olderer than he was too old last time

I know Biden is old. That was explained to me in the 44,309 mainstream media articles and cable news segments that failed to mention that Trump is almost as old, morbidly obese, and is showing signs of dementia.

But given the choice between Biden -- who's given us the Infrastructure bill, the CHIPs act, steered us to the fastest, strongest pandemic recovery in the G7, and in 2023 produced the highest U.S. oil exports in history, breaking the record previously set in 2022 -- and a guy who his own former vice president says should never be president again -- along with almost everyone else who served in his cabinet... well, Let's Go Brandon!

As for Harris: if Biden dies in office, either the country and politicians rally around her or she becomes a lame duck. At least she's not going to give Ukraine to Russia or start building luxury apartments in Serbia and Albania.

Oh, and I don't much care about taxing billionaires out of existence -- which ain't ever going to happen anyway -- but will note that Tesla earned $4.4 billion from 2018-2022, gave its executives $2.5 billion, but didn't pay a penny in federal income taxes.

https://www.engadget.com/tesla-paid-no-federal-inc...

Until you take away the capital they've generated. Then there's no new business that gets formed.

But the same is true of every one else that's being taxed.

I work in a law firm. The way law firms are structured, everyone's income is always taxable - even the founders and owners. There's no appreciation of "shares" in the firm analogous to corporate shares, to allow their earnings to escape realization. That means there's less capital available for them to invest in new businesses (or expanding the old one). Plenty of people would have more capital for investing in businesses if they were spared from taxation - but because they earn their income through forms other than share appreciation, they have to pay their taxes.

For nearly everyone (in nearly every economy, not just ours), some of your earnings go to the taxman to pay for government. By definition, that means that some proportion of those earnings is not available for consumption or investment or savings - it goes to pay for government. There's no economic reason to exclude the money people earn through share appreciation rather than wages or other realized income. There are a lot of practical reasons, but not a good economic reason.

Most people who are successful in business provide a ton of value to their customers, investors, and employees. They all have to pay taxes on the money they earn. There's no reason to let a handful of people escape paying the same type of taxes on their earnings as everyone else has to pay (who are almost all also contributing value) just because of the form in which they earn that money.

For the record, the majority of American families experience home ownership and/or retirement account ownership. Both home ownership and retirement account ownership are very much involved in having "unrealized gains" that are not taxed. So the question is, do we want to let almost everybody who has unrealized gains "avoid" paying taxes on them until they are realized, but force only rich people to pay that kind of tax?

I say suck it up and be willing to wait till people either realize the gains in order to spend their winnings, or they die with the unrealized gains still unrealized. Death and her midget twin sister Estate Taxes will come for all the billionaires eventually, at least if we have more than $11 Million, which all billionaires do.

Meanwhile, the gov't is collecting A LOT MORE in taxes by leaving these investments in the hands of people who know how to grow wealth before taking their cut. 40% of Elon's Paypal payout is pocket change compared to the $11 billion in income taxes Elon paid the year he bought Twitter. That's $11 billion the federales would never have gotten because it wouldn't have been created if unrealized gain taxes were levied on a young Elon. Multiply that by Bezos, Buffett, Jobs, Page, Brin etc. and you see a big hole in tax revenues at the federal level for taking invested wealth from potential billionaires early.

R:

I work in a law firm. The way law firms are structured, everyone's income is always taxable - even the founders and owners.

OK, Al. Time to open the kimono all the way if you are going to claim stuff like this.

If real law firms are anything than the ones I've seen on TV, then when you get invited to be a partner, you must make a capital contribution to buy your partnership share. And then decades later when you leave the firm, your share is bought back from you by, essentially, the new partners coming up and replacing you.

Al, how much did a partnership share cost you in the 70s or whenever you might have become a partner?

Al, how much is that partnership share worth now. More?

Because this is PRECISELY ANALOGOUS to the "unrealized earnings" of most rich people you are talking about. They had stock (which is literally describable as "non-partnership shares" as opposed to "parnership shares" in a partnership). They got that stock when it was worth a few hundred thousand if they were founders. Years later those shares are worth millions, but that gain is untaxed because they haven't sold the shares.

And taxing them on unsold shares would actually FORCE THEM TO SELL the shares, which in some real sense, they need to keep in order to continue owning the company they have built and run for decades.

Does your own law firm experience still put you in a different situation than the others with unrealized gains?

Al, how much did a partnership share cost you in the 70s or whenever you might have become a partner?

Al, how much is that partnership share worth now. More?

I’m not quite that old - and my interest is worth not that much more. Law firms, by and large, do not accumulate large amounts of money or assets. The amount of capital in the business doesn’t change all that much, and very little of the firm’s earnings accrue that way. Appreciation of my capital shares will be barely a percentage point (if that) of my lifetime earnings. Compare that with a Buffett or a Gates.

But given the choice between Biden -- who's given us the Infrastructure bill, the CHIPs act, steered us to the fastest, strongest pandemic recovery in the G7, and in 2023 produced the highest U.S. oil exports in history, breaking the record previously set in 2022 -- and a guy who his own former vice president says should never be president again -- along with almost everyone else who served in his cabinet... well, Let's Go Brandon! - CO


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I am going to take a break from basking in all this sweet infrastructure that suddenly dominates the landscape, and provide you a link to an article I read last week exposing the dark DEI underbelly lurking within Bidens Chips Act....

https://thehill.com/opinion/4517470-dei-killed-the...

DEI killed the CHIPS Act
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DEI — the identity-obsessed dogma that goes by “diversity, equity, and inclusion” — has now trained Google’s new AI to refuse to draw white people. What’s even more alarming is that it’s also infected the supply chain that makes the chips powering everything from AI to missiles, endangering national security.

The Biden administration recently promised it will finally loosen the purse strings on $39 billion of CHIPS Act grants to encourage semiconductor fabrication in the U.S. But less than a week later, Intel announced that it’s putting the brakes on its Columbus factory. The Taiwan Semiconductor Manufacturing Company (TSMC) has pushed back production at its second Arizona foundry. The remaining major chipmaker, Samsung, just delayed its first Texas fab.

This is not the way companies typically respond to multi-billion-dollar subsidies. So what explains chipmakers’ apparent ingratitude? In large part, frustration with DEI requirements embedded in the CHIPS Act.

Commentators have noted that CHIPS and Science Act money has been sluggish. What they haven’t noticed is that it’s because the CHIPS Act is so loaded with DEI pork that it can’t move.

The law contains 19 sections aimed at helping minority groups, including one creating a Chief Diversity Officer at the National Science Foundation, and several prioritizing scientific cooperation with what it calls “minority-serving institutions.” A section called “Opportunity and Inclusion” instructs the Department of Commerce to work with minority-owned businesses and make sure chipmakers “increase the participation of economically disadvantaged individuals in the semiconductor workforce.”
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Handouts abound. There’s plenty for the left—requirements that chipmakers submit detailed plans to educate, employ, and train lots of women and people of color, as well as “justice-involved individuals,” more commonly known as ex-cons. There’s plenty for the right—veterans and members of rural communities find their way into the typical DEI definition of minorities. There’s even plenty for the planet: Arizona Democrats just bragged they’ve won $15 million in CHIPS funding for an ASU project fighting climate change.
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Intel is also building fabs in Poland and Israel, which means it would rather risk Russian aggression and Hamas rockets over dealing with America’s DEI regime. Samsung is pivoting toward making its South Korean homeland the semiconductor superpower after Taiwan falls.

In short, the world’s best chipmakers are tired of being pawns in the CHIPS Act’s political games. They’ve quietly given up on America. Intel must know the coming grants are election-year stunts — mere statements of intent that will not be followed up. Even after due diligence and final agreements, the funds will only be released in dribs and drabs as recipients prove they’re jumping through the appropriate hoops.

For instance, chipmakers have to make sure they hire plenty of female construction workers, even though less than 10 percent of U.S. construction workers are women. They also have to ensure childcare for the female construction workers and engineers who don’t exist yet. They have to remove degree requirements and set “diverse hiring slate policies,” which sounds like code for quotas. They must create plans to do all this with “close and ongoing coordination with on-the-ground stakeholders.”
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This is the stuff declining empires are made of. As America pursues national security by building a diverse workforce, China does it by building warships.
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...more at link