What do you think of taxing unrealized capital gains?

(1) The Washington State Constitution forbids graduated taxes on property (including income). Neither the tax on realized nor unrealized capital gains is graduated.

(2) According to the Washington Supreme Court, the tax on realized capital gains is an excise taxes, not an income tax. The logic here is pretty straightforward, though it is broken into two parts:

Argument A
• Income taxes are direct taxes.
• The capital gains tax is not a direct tax.
• Therefore, the capital gains tax is not an income tax.

Argument B
• The capital gains tax is an indirect tax.
• The capital gains tax applies to an exchange of assets rather than the assets themselves.
• An indirect tax on an exchange of assets is a type of excise tax.
• Therefore, the capital gains tax is an excise tax.

Taxing unrealized capital gains is extremely complicated even relative to our already complicated and convoluted tax laws, which is why we typically try to avoid it. Inheritance and estate taxes are much easier to implement and less prone to error. However, there has been an all-out assault on such taxes for decades now (an assault that has succeeded largely on the basis of misinformation), and the elimination of such taxes has created all sorts of tax loopholes. This is why we are starting to see proposals regarding the taxation of unrealized capital gains.

I would greatly prefer a system that simplified the tax code and closed these loopholes. There are all sorts of ways to do so if we are willing to stand up to the small number of deep-pocketed opponents to these reforms. So while I agree in theory that taxing unrealized capital gains is undesirable, it’s not surprising that governments are trying to find ways to do so given the current circumstances.

Does that mean if I take a large stock loss, I get a refund ?

Oh I don’t have millions in stocks or Cryptocurrency, the current tax is only on $270,000 in capital gains (from sale of MILLIONS of dollars with of assets). I read they collected from 3000 people in 2023; there is over 7.8 million living in Washington State. ?

@Tropical_Willie “Does that mean if I take a large stock loss, I get a refund?”

Right, that’s one of the problems with taxing unrealized capital gains. Because the gains are unrealized, the tax is often based on an estimate. And even where it is not, there is the question of what to do if the gain is less valuable than expected when realized. The obvious thing to do is issue a refund, but this can be a huge headache—particularly if it has been many years or if the asset has changed hands (which certain rules allow to happen without the gain being considered realized).

@SavoirFaire Like you indicated above, it takes twisted logic to say that capital gains (realized or unrealized) is something other than income.

@Tropical_Willie The leaders in Washington State will likely just start taxing the capital gains on “rich’ and than over time tax everyone’s capital gains.

Tax refund on stock losses? No.

I don’t have a clear opinion on taxing unrealized capital gains but it is clear to me that there is going to be much less federal money coming to the states to fund programs soon. If states do not have an income tax or other source of revenue, how will they continue to serve the needs of their residents? A sales tax which hurts the poor mainly is another option.

I find it completely criminal. Taxes on income or property are bad enough. But when you are going to tax someone because something they invest in goes up in value is just idiotic. It is a cheaply disguised way of saying “wealth redistribution”. By the reasoning of the logic used to come up with this idea, you would be taxed twice on your home. Once for the property tax, the other for the unrealized capital gains if your property goes up in value. Additionally, the tax is cumulative. If your home goes up in value say $1000 in the first year you own it, you are taxed on $1000 for unrealized capital gains even though you are not planning on moving for another 30 years. But then the market is good and the value of the property goes up another $9000. But your tax burden for year 2 is now $10,000…the $1000 you were already taxed on plus the new $9000. The tax is typically calculated from what you purchased the item, not from what you have already been taxed.

I am not for taxing something that you have not reaped any gains from.
Conversely, are they going to allow for a deduction because it goes negative?
I think it would wreak havoc and be incredibly difficult to implement and monitor.
I also think it would discourage long term investment and in many ways would be considered unconstitutional.
But hey, In today’s climate, what is Constitutional anymore?

Well, it might depend on what kind of unrealized capital gains you mean.

I think it’s going to cause people to tend to sell whatever’s taxed that way.

My own experience with taxes, is that they tend to reduce me to breaking even, or even put me in debt sometimes. That means that if they tax some asset that’s become more valuable, I would almost need to sell it to stay solvent.

So if it applies to home values, I would think that would cause many people to need to sell their homes. Especially in Seattle, where some people bought their homes for a tenth (or a hundredth!) of what the market says they are worth now.

If it applies to stocks, then I would think that would make people sell their stocks, which would in turn lower stock values . . . I’m not sure how that would work out.

If you use said investment as collateral for a loan, then I think it should be taxed.

What’s the logic in charging tax on money that you have never seen?

@elbanditoroso See Buy, Borrow, Die.

Taxing unrealized gains is just hurtful. When it is realized, I have no problem taxing it.

Imagine you buy a finger painted picture at a garage sale for $20. Someone claims it’s a Picasso, and worth $3 million. You owe a couple million in taxes. Two years later, you try to sell. It wasn’t a Picasso, and was worth bubkiss. Do you get that money back? Only if you refile, and all the pain you went through is for naught.

@filmfann How often do you think that happens? Has it ever happened?

How many billions of dollars in unrealized taxes are billionaires avoiding because of “buy, borrow, die” in real life?

Which is the greater concern?

Unrealized gains are….unrealized and should not be taxed.

Horrible idea in my opinion.

Reminds me of the idea for a wealth tax. Another horrible idea in my opinion.

@JLeslie What’s wrong with a wealth tax? We’ve got the highest wealth inequality in the history of America…

@gorillapaws There is nothing that says wealth needs to be equal.

@seawulf575 I agree that wealth doesn’t need to be equal. Wealth taxes don’t make wealth equal, they simply make wealth less unequal. There’s a big difference. You should check that out.

^ A side-effect of people having no class consciousness is that working and poor people will bend over backwards to justify billionaires being able to get away with not paying taxes.

@gorillapaws How do you measure wealth? Is my house worth $500K or $550K? Part of wealth is estimating on a given day what investments and assets are worth. Stocks can decrease 20% in a day. What if my wealth is $1million today and then next year is only $700,000? If I lost the $300,000 on investments and never got to use the money because it was locked up in my house or stock market, do you think it is fair to be taxed on the higher amount that particular year?

We do use the value of investments or savings on a particular day to measure the required minimum withdrawal (distribution) from an IRA account for people over age 72. I actually have to use that for an IRA I inherited from my aunt. The IRS uses the Dec 31st balance of the previous year to do the calculation for the coming year, and that number can theoretically be very different just a day later and it is not necessarily realized income.

Will the law that is proposed (the original question from the OP) only be taxed over a certain income?

Taxing unrealized capital was the impetus for California adopting Prop 13 almost fifty years ago.

Property taxes were applied to assessed valuation, when the value of a house doubled in about six years. But you couldn’t realize that gain unless you sold your house. Prop 13 locked a home buyer into the value when they bought the house, with only a modest increase after that. Buy a house in California now, and you know what your property tax will be until you sell the house.

@gorillapaws Where does it say that wealth has to be less unequal? It doesn’t. When you go on and on with your Marxism, you forget that not all people are created equally. If you zeroed out all people’s wealth and then gave everyone the same amount to start with, within one generation you’d see the inequality starting again. It doesn’t work. There are always going to be people that are go-getters and those that are complete slackers. Those that are intelligent and those that aren’t. In your frantic effort to level the playing field you are forgetting this little fact.

@seawulf575 “Where does it say that wealth has to be less unequal?”

The constitution: “We the People of the United States, in order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.”

It’s not to “promote the welfare of billionaires” at the expense of the working class. Furthermore, having dramatic wealth inequality reduces our nations security, domestic tranquility and justices. Our forefathers rejected aristocracy, nobility and dynastic intergenerational wealth.

@seawulf575 “When you go on and on with your Marxism,”

Progressive taxation isn’t Marxism. At the height of McCarthy anti-communism, the top marginal tax rate was 90% under Republican Eisenhower. Maybe you’re confused about what Marxism is? or how progressive taxation works? I think when the playing field becomes too unequal bad shit happens and we’re worse for it as a nation. Our life expectancies drop, our happiness drops, our infant mortality increases, childhood poverty increases, our social mobility score gets worse, etc.

The notion that billionaires just work extra hard is financial fantasy fiction—naive to the point of being embarrassingly childish.

@JLeslie “How do you measure wealth?”

The same way a divorce attorney does: you value the assets with an accountant at fair market value.

Here’s Bernie Sander’s proposal:

“It would start with a 1 percent tax on net worth above $32 million for a married couple. That means a married couple with $32.5 million would pay a wealth tax of just $5,000.

The tax rate would increase to 2 percent on net worth from $50 to $250 million, 3 percent from $250 to $500 million, 4 percent from $500 million to $1 billion, 5 percent from $1 to $2.5 billion, 6 percent from $2.5 to $5 billion, 7 percent from $5 to $10 billion, and 8 percent on wealth over $10 billion. These brackets are halved for singles.”

@gorillapaws Divorce is different. It isn’t a tax, it is dividing assets.

@JLeslie I’m just making the point that “measuring wealth” occurs often. The process is well-understood.

^^fair enough, but just saying I don’t agree with it for income tax. Property value is used for property taxes, so you could argue that also as another example we use estimated value there too. I’m still completely against a wealth tax.

I am in favor of fewer loopholes for the wealthy. I would get rid of the 1031 probably. I would raise the capital gains tax, but not necessarily as high as earned income tax. I would increase the capital gains no tax or low tax for gains under a certain amount so middle class can have very low tax on investments. I think right now there is no tax on gains up to $75k? But, does that mean AGI needs to be under that amount? I don’t remember.

I would never have a $13million exemption for estate tax. I would reduce the exemption and have a more progressive estate tax.

@JLeslie “I am in favor of fewer loopholes for the wealthy.”

So how do you address Buy, Borrow, Die? you don’t want to tax unrealized capital gains and you don’t want to tax wealth… That loophole is kind of the elephant in the room isn’t it?

@gorillapaws There are many more loopholes. As I mentioned:

- The 1031 for real estate.
– The tax free sale of a primary residence maybe should not have been $500k for a married couple, maybe it should have been $250 per property. I understand the sale of a house can be a nest egg for retirement, but flipping every two years is also a business for some people. The tax advantage for a couple vs an individual I am not sure if it is really fair.
– I am for a higher capital gains tax than what exists today, but not necessarily as high as earned income tax.
– Yes, to the death taxes. Not to mention right now my parents could (they don’t) give me something like $72,000 a year tax free, because there is two of them and my husband and I. That is a lot of money changing hands with no tax consequence in my opinion for the people who do use it. I would lower the limits on the gift tax exemption, or at least stop increasing it.
– Progressive tax, higher tax on very high incomes. Incomes over $500K AGI.
– Government programs need to really be evaluated. ACA is giving ridiculous subsidies to the pockets of gouging insurance companies. Wealth does not matter. I can have $5 million in wealth and get a subsidy from the ACA. That probably angers some people, but it angers me more that anyone or any entity is paying too much to begin with. Then you have the fraud that is going on too. Probably we could save almost a billion dollars on our budget if medical care was done differently.

Why should savings be taxed over and over again? You pay taxes when you earn the money, now you want to tax the money every year? Investments are like savings.

@gorillapaws “The notion that billionaires just work extra hard is financial fantasy fiction—naive to the point of being embarrassingly childish.” You have a gross misconception of what I said, that is obvious but not surprising. What I said was that some people are go-getters and some aren’t and that some are intelligent and some aren’t. Sometimes that equates to working hard, other times it equates to being smart or taking chances.

Let’s take the billionaire of billionaires: Elon Musk. Do you believe he inherited billions of dollars from his parents? No. He started a variety of companies and gradually built his fortune. He started a software company that was eventually bought out by Compaq. He then went on form X.com which was a direct bank. It went on to become PayPal. When he was 31 he sold that to Ebay. He went on to form SpaceX and then, seeing the need, went into electric vehicles with Tesla. Every step of this was him taking chances, coming up with ideas, figuring out how to bring them to reality, benefiting from strategic sales and reinvesting his money smartly. Technically he didn’t do anything you or I couldn’t have done. So why didn’t we?

Your Marxism is continuing to show through with your glaring hatred of the wealthy. Workers of the world unite and all that, eh?

@seawulf575 So you think Musk is a positive example of “the system” working correctly?

@gorillapaws I think Musk is a great example that shows your views are skewed significantly. He is a great example of someone that used his brain and his wit and his nerve to build his wealth. I know, he’s a billionaire so that automatically makes him evil in your book. But maybe you need to consider human nature when you start wanting to share the wealth of other people.

@seawulf575 Musk was an illegal immigrant (his brother too).

He was a student on scholarship and depended on charity to succeed and was a teacher’s assistant which means it’s quite possible that his salary was paid from “indirect expenses” from the grants his professor was awarded by the government.

He built his early businesses on the Internet, which was built with taxpayer money and largely financed by the taxpayers for the common good of all.

With SpaceX, Musk benefited from billions of dollars of public investment over many decades into rocket research, as well as the millions of taxpayer dollars invested in the educations of the engineering teams that allowed the company to succeed.

Tesla is a similar story. Tesla is ultimately a battery company. EV’s wouldn’t be possible without Lithium-Ion battery technology. This was made possible by the research of John B. Goodenough at the University of Texas at Austin using publicly funded research who developed the material science of the cathode material that these batteries use. Furthermore Tesla benefited from a wide number of government investment programs, incentives and free-market manipulations such as the ZEV program in California which were responsible for making Tesla profitable. It likely would not have survived without it.

Here’s the rub. I don’t think all billionaires are evil by default. I actually think Musk’s story of an illegal immigrant coming to America, being given charity (via need-based scholarship) to educate him, and then building wealth via public investment and government support of research and promoting technologies that benefit the American people to affect a positive change is a great story. One which I (and many others) benefited greatly from.

All of this was paid for by taxing the hell out of rich people. Much of SpaceX’s tech wouldn’t be possible if we’d not taxed the richest people in our country a 90% marginal tax rate to develop the rocket technology that ultimately evolved into what SpaceX used, and the investments made by those taxes bore fruit decades and generations later to make possible the next generation of wealth.

Musk’s story is why public investment in the American people, their education, basic science, public programs, financial incentives in the market and other forms of the government “promoting the general welfare” of the American people is a good thing.

Now Musk IS evil, because he’s a fucking Nazi, and he seems hellbent on destroying the kinds of programs that made his story possible. I do have a problem with concentration of wealth and so I do have a problem with the idea of billionaires. I think taxing unrealized capital gains would go a long way to addressing those problems.

To be clear, it’s not that I think it’s unfair or I’m personally offended by the wealth, its because I understand that that money is better used to reinvest in the American people, and in safeguarding America’s resources.

@gorillapaws Look at what you are writing and then think what you believe. Musk WORKED as a TA, possibly getting paid from GRANT money from the government. He BUILT his business on the internet which built with tax payer money. SpaceX benefited from billions of dollars of public investment.

You want to make this all about the government giving people stuff. But you miss key points. Yes, those opportunities were there, but they were there for everyone. So why didn’t everyone become a billionaire? And the government didn’t pay for his college, he got a scholarship which means he earned it (and scholarships are often privately funded). They didn’t pay for his work as a TA. His professor had grant money to be used for his project which was what Musk was working on. So he was just an employee. By that reasoning, wealthy billionaires are fantastic because they create businesses and every single employee benefits from them. You talk about him working in the internet and claim it was paid for by taxpayer dollars. This is only partially true as the whole world was working on this and often it was private individuals or companies (like the Rand Corp). But in the end, all the advances were from those like Musk who took a chance to create something for an opening opportunity. Do you really believe that sinking your own money into building something for the internet was a guaranteed win? No…it was risky as hell.

The list goes on and on. In every case, Musk worked, took chances, recognized opportunities, etc. That is the sort of behavior many of the billionaires have. That is the sort of behavior that most people don’t have. And that is why there is so much wealth disparity. People like you want to come in at the end and say “Look! They have too much. We should take it from them.”. The only time I agree with that sentiment is when someone does something completely criminal. Bernie Madoff, Charles Keating, etc. should, when they are caught, have all their money and assets, and the money and assets of their families, seized. Criminal behavior is criminal behavior.

@gondwanalon “it takes twisted logic to say that capital gains (realized or unrealized) is something other than income.”

The court’s logic does not claim that capital gains are not income. It claims that a tax on certain transactions involving capital gains is not an income tax. There are better solutions to the “buy, borrow, die” problem that @gorillapaws mentioned, but they have largely been thwarted. So now governments are doing this. Opponents of taxes on unrealized capital gains would probably be best served by working to undo the barriers to those other (better) solutions.

@SavoirFaire Thank you very much for your responses. Forces me to think. I admit that it is difficult for me to grasp the justification for the unrealized capital gains tax.
Questions occur to me like how will such a non-tangible tax be monitored, and controlled? Will a new department be created and be managed by a huge number of employees solely for this tax?

This is similar to a “Catch 22”.

https://www.flickr.com/photos/48774809@N07/54334803067/in/dateposted-public/

We can bitch and moan about it but in the end there is no escape from paying Big Brother his due.

Long live Big Brother!

I was wondering out loud a few days ago to my mom if Musk ever paid the US government back? Was it all grants for his battery/car company, or more of a loan? He benefitted from tax money and I wonder if Trumpers have any clue and if they do if they bother to internalize the information.

Keep in mind Capital Gains does increase investment in the US and keeps us competitive in the world for investment. Moreover, not only the super-wealthy have investments, so we need to be careful not to hurt middle class and not to hurt new and small business owners.

@seawulf575 “You want to make this all about the government giving people stuff”

That’s not what I said at all. I said the government INVESTED in people and in science/research. There’s a huge difference. I’m not arguing that Government investment, incentives and regulations were SUFFICIENT for Musk to become the richest person on the planet, I’m arguing that they were NECESSARY conditions.

I’m also pointing out that Musk is actively trying to remove the programs and investments that made his success possible. I mentioned the “indirect costs” on the grants because as part of his DOGE gutting of research they dramatically cut out funding for indirect costs—which is the structure for paying for things like TAs. In other words, had Musk been a student under a president that enacted the policies that Musk is pushing now, then he very likely would have been fired from his TA job and never graduated from U Penn and learned computer science, probably never created a company that was bought out by PayPal. Maybe he would have gone on to create a Nazi trading card game or something?

@seawulf575 “So why didn’t everyone become a billionaire?”

A lot of it is luck: right place at the right time, right government structure/incentives/regulations, right employees, right customers, right vendors. I know many people with net worths in the 0.1% and they do have an entrepreneurial spirit and grit. They all had some luck on their side as well. I also knew a guy who was a successful entrepreneur, Harvard graduate who was unlucky got sick, lost everything was basically homeless and ended up jumping in front of a train.

@seawulf575 ”...he got a scholarship which means he earned it.”

It was a need-based scholarship, not a merit-based scholarship. Musk received charity from the school and then became an illegal immigrant.

@seawulf575 ”...But in the end, all the advances were from those like Musk who took a chance to create something for an opening opportunity. ”

Again this is financial fantasy fiction. Many of the major advancements were from open source initiatives that were created by people and released into the world for free. Linux (which powers most of the world’s servers, and countless “internet of things” devices), SQL, most programming languages, most protocols for communication between devices, most security algorithms for enabling secure transactions (like the ones PayPal uses), and database technology that stores and retrieves the gazillion ones and zeros that make up the internet all came out of publicly funded research or open-source projects. Closed-source, commercial projects are the exception when it comes to major market successes for transformative tech breakthroughs.

@seawulf575 “Do you really believe that sinking your own money into building something for the internet was a guaranteed win? No…it was risky as hell.”

Musk didn’t have any money to sink into his startup. He was “eating ramen” and coding. If it had failed he could have gotten a job at a tech company and been ok. It’s not like it was a big, dramatic gamble. He caught some lucky breaks and things happened to go well for him. Such an outcome was far from likely however. There were many other people doing similar things and his lotto numbers happened to come up. Such is Capitalism.

@seawulf575 “Musk worked, took chances, recognized opportunities, etc. That is the sort of behavior many of the billionaires have. That is the sort of behavior that most people don’t have.”

He did. And he would have done those same things if outcome was being worth more than he could spend in 2 lifetimes or 100 lifetimes. The incentive to do those things do not increase with wealth beyond a particular level. I’m not opposed to some people earning obscene wealth. I agree that there will always be inequality for the same reasons you stated. What I am saying is that The levels of inequality are so dramatically unequal that it’s problematic for our nation. We’re a society, we can decide how we want it to work and most of us would rather have a system with a healthy middle class and the richest paying a lot more than they are, with robust social safety nets, investments in public education and research, healthcare, and childcare, even if that would mean that should I found a company that invents the next Model S and I keep my company from going under via government regulations that mandate other companies offset their carbon emissions vehicles by buying credits generated by the sales of my vehicles, then I may only get to be worth $2B instead of $400+B. I’m ok with that. It’s setting up the next generation for success, and it’s more money than I could ever hope to spend in my lifetime.

@seawulf575 “And that is why there is so much wealth disparity”

No. The reason we have so much wealth disparity is because under Reagan we stopped taxing our rich people like we used to and seem to be unwilling claw any of that back with schemes like taxing unrealized capital gains. Also the wealth never trickled down as promised. It was concentrated at the top (as was predicted by everyone with a fucking brain). Don’t you think there were people who worked, took chances, recognized opportunities, etc in the 60’s? Why was the wealth so much more proportionately distributed back then? Did having progressive text structures really deter innovation? I seem to recall that time period being one of the biggest economic booms in US history. So your hypothesis is provably false.

@seawulf575 “People like you want to come in at the end and say ‘Look! They have too much. We should take it from them.’”

I say: Look! They have too much money, not only are they destroying our country, but they’re benefiting way more from the US than they’re contributing back and we should tax them to recoup that mismatch in value. Musk couldn’t have built SpaceX or Tesla in Somalia or Peru. It was only possible in the US because of the investments the public had made into him, his employees, the infrastructure and research to make that wealth possible (assuming we didn’t deport him to Guantanamo before he ever had the chance to start his first software company) and the taxpayer expects it’s ROI on that investment.

^TLDR. I get that you are clinging to your Marxism and trying desperately to make it about the evil rich people. But the things you never address are right there. They are things I have challenged you with and you don’t actually answer them. What made Elon Musk so rich and why him instead of the millions of others that were in similar situations? You even touched on it but tried turning into something bizarre. He couldn’t afford his first start up. Yet he did it. Why? He saw a chance and took it. He risked all he had, living in squalor and eating ramen. Did he get a luck break? Sure. But he recognized it when it came. And just as easily he could have lost everything and been out on the street. But he didn’t. Now…how many people have that drive, that willingness to sacrifice for what they want, that are willing to risk it all? Not a whole lot. As you said…he could have gotten a good paying tech job but he didn’t. It isn’t anything the government did, it isn’t anything his parents gave him as a huge leg up, it was him, finding what was available to him and using it. THAT is the entrepreneurial spirit that separates people like Musk from people like you and me.

And now that he has made it hugely, you want to take his rewards away from him. What is the benefit of risking it all to make it big if you are going to have to give it all up to others that didn’t want to do that and only wanted to soak up the benefits of those that do?

If you want fair taxation, then everyone should pay 10% on gross earnings…all gross earnings…with no deductions or credits. If you are on welfare and are getting $20k/yr, you pay $2000. If you are Elon Musk who makes say $600M/yr, he pays $60M. And to be fair, he uses far less of the public services that his tax dollars are paying for than many people. Would that make you happy? He’d be paying “his fair share”, just like everyone else.

TLDR

@seawulf575 “Now…how many people have that drive, that willingness to sacrifice for what they want, that are willing to risk it all? Not a whole lot.”

Every asylum seeker coming into the US has it, so do drug dealers. It’s not this magical trait that’s necessary and sufficient for becoming a billionaire.

@seawulf575 “What is the benefit of risking it all to make it big if you are going to have to give it all up to others that didn’t want to do that and only wanted to soak up the benefits of those that do?”

You’re misstating my objective. I don’t want to take away EVERYTHING as you’re dishonestly claiming. I’m saying we invested a lot in him and we want our payout. He can be obscenely rich, but we want our cut too, and it’s a big cut.

@seawulf575 “If you want fair taxation, then everyone should pay 10% on gross earnings”

And so Musk and guys like him can continue to take out loans and live like kings, have 0 gross earnings and then never pay taxes. Genius! If we did things your way we wouldn’t have people going from middle class to the very top. It would be a perpetual neofeudal hyper capitalist society. Literally the stupidest fucking idea ever.