Taxing realized gains has the obvious advantage that’s there’s no question as to what the value was at the transaction. Unrealized gains have to be estimated/appraised; you get into minority ownership issues as well. (How much would you personally pay for 10% of a business where I control the other 90%? If most of my wealth is tied up in a business I’ve created, given that, how do I reasonably raise the cash to pay the tax on a gain that hasn’t been realized?)

Similar questions for a house that I’ve paid off prior to retiring. It doesn’t make sense to me to have people paying imputed capital gains on some number that Zillow or a government version thereof decides is right.

Taxing unrealized gains makes no sense because that money is not earned at all until a sell is made. It's all paper. Worth something in theory but the moment taxes hike on it the value will be lost as no one will invest in that due to tax burden. The most notable bug of economics is that by changing the rules you also change the incentives and in the end the desired gains are nowhere to be seen as no-one holds the assets which are taxable pre-sell.

GAAP has companies recognizing unrealized gains, it's not complete nonsense.

https://smallbusiness.chron.com/gaap-accounting-rules-unreal...

“No one would invest” is too strong IMO. People will surely invest rather than hold currency.

The other thing is small time investors and pensions could be spared this tax.

If I am a market maker or arbitrageur and I do tens of thousands of trades a day, I owe income tax (uh, short term capital gains tax) on all of that. If I own equity in a market maker or arbitrageur that does tens of thousands of trades a day, I owe nothing until I sell some equity.

Over reasonably long time scales with reasonable assumptions about the profitability of such businesses, the vast majority of the value of the company comes from its preferential tax treatment.

Not sure why you are downvoted but the point is correct.

Maybe the trading example isn’t great. I think a better example is simply Amazon - famously not making a profit for years.

What they are doing is reinvesting and avoiding tax on the “profit” but it’s hard to distinguish reinvestment from cost and so hard to tax.

Interestingly in my country there is an R&D tax credit for businesses and they are happy now to say that software devs are doing R&D (so like… an investment) to claim that ha ha.

The other angle is using profits to do buy backs instead of paying dividends. In both cases you give back to share holders. With buy backs you both defer and minimise tax for the investors.

Edit: hello downvoter!

So if Bezos has a few billion in unrealized gain one year, we send him a big bill. The next year the stock market crashes—do we send him a big check?

We send him a credit on his next years tax

This would increase the cost of capital and potentially reduce investments, would it not?

Yes, because capital ownership is private. Perhaps we should rethink that?

> Perhaps we should rethink that?

hasn't it already been tried, and shown to fail?

There's a universe of possibilities between unrestrained globalised hyper-financialised capitalism, and murdering people who wear glasses and making everybody work on agriculture a la Cambodia.

Ideas like Georgism allow us to retain the most useful features of a market economy while taming its brutal, violent, undemocratic features. That's the premise of market socialism in general.

Why?

“Hold them in perpetuity”? How is that a benefit? If you don’t actually have access to the money?

You don't access the money directly. You access loans against the value of it, which, when well-collateralized, have very low interest rates that are more than made up for by the rise in value of the underlying asset.

You don't have to sell shares when you can take a loan out against them instead.

But you have to pay the loan back.

That’s no different than a homeowner taking out a HELOC and never selling their house.

Taking a loan is not a benefit.

Yes you pay the loan back, just like you would have to save money back up if you spent it directly, if you wanted to get back to the same level of wealth.

If you spend money, the opportunity cost is whatever else you might have done with that money in the meantime.

If you just take a loan out against the value of an asset you have, the opportunity cost is only the low cost of the collateralized loan, because you continue to own the asset and benefit from all its appreciation. AND you don't have to pay taxes on the capital gain because you haven't sold the underlying asset.

I strongly recommend looking into this at whatever depth is necessary until it clicks. This is one of the main differences in mental paradigm between people who become extremely rich and people who don't. It might be counterintuitive at first, but it's a really important, beneficial principle!

Taking a loan most certainly is!

You never pay it back if you are rich. Remember a 10% loan would be billions to these people. As long as there isn’t a 90% crash then no liquidation.

It’s not like a middle class refinancing their house to buy a Ferrari and then getting into trouble when they lose their job.

Also: Almost no interest.

No tax (the tax is perpetually deferred, probably beyond death down the generations, although not sure in the US. There are trusts for this in other countries)

Houses usually taxed on an ongoing basis. Not really comparable to stocks.

$4bn in earnings and $400bn in wealth, it’s more a case of what is this benefit you need with billions in cash?

Is there an apartment in New York whose rent you can’t afford?

What is for sale as a private person that’s worth cashing in the billions and paying tax to buy? You already have a business you can use to turn that into more money anyway which is probably the most satisfying game.

Unrealised gains compound faster than taxed gains. You then only have to pay taxes on the money you spend.

Just take a loan against the assets to pay for stuff.

Like a payday loan against my paycheck? Or a HELOC against my house?

Would you argue that someone is “gaming the system” by not paying taxes on say a rental property but borrowing against it?