No. of Recommendations: 3
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?
