They take out loans and aren't taxed on it. But they have to pay taxes when they pay off the loans, and at that time they'll owe even more money meaning more stocks will have to be sold.
But wait, how are they avoiding that tax even then? Well they take out another loan. But eventually that stops. They can't take out infinite loans, so what is happening? When they die, there is some tax trickery that involves resetting the cost basis of assets, then selling them with 0 capital gains to pay off the loans. The simple fix is to only reset the values after the estate pays out, meaning that any assets sold to pay off any loans will have to pay the real tax on their value, and only afterwards is the cost basis reset when inheritors receive those assets.
That seems a much more minimally invasive change, and also seems much more in line with the intent of the existing tax code to begin with, as the cost basis should only reset for those inheriting and not for paying off existing debts.
I understand you're viewing it as a tax increase as the estate pays less tax on death under the current system, but sometimes you need to realise you're stuck in the overton window.
Whether or not you think any of the companies funded by YCombinator[0] are actually worth their valuation, you have to realize that there will be fewer such startups if a tax on unrealized capital gains is passed, and that VC activity, along with the future startups chasing their money, absolutely will move to countries without such a tax.
Again, maybe you actually believe the startup scene in the US is worthless, in which case, go ahead and advocate for an unrealized gains tax Just be honest with yourself that it will entirely shut down sectors that others view as critical to the country's future dominance.
That's a bold claim. The tax-averse amongst us say that, but in my experience investment flows to the best ideas / best distribution / best businesses. If those people are in the US because they're citizens, the capital will flow to the US, and investors will take the hit.
“Hold your shares or buy more at a discount” is incredibly out of touch with the average person who will be affected by an economic depression.
“Payments can be spread out over subsequent years”
SVB would still be around today if it was possible to convince people to not panic sell
Price shocks are bad because they can cascade and cause businesses to fail, resulting in layoffs, etc.,. Stability is one of the most important things in the economy.
They will be incentivized to do this otherwise they will get nothing for their shares.
It's not about that. Would you rather live in the US or would you rather live in China (social credit) / Russia / North Korea?
But I know what you're argument is going to be: "We're going to do communism in the US, but this time we'll do it right!".
"But it's only going to be for people worth more than 100 million!": it may crash the entire stock market with the absurd amount of taxes they want to impose. If the entire stock market crashes, regular people are going to be affected (pension funds comes to mind).
Such a tax may very well have the exact opposite effect of the one hoped for.
I'm not even commenting about the next Elon Musk who might simply to launch his next Tesla / SpaceX and Starlink in another country than the US.
Is the US better with or without Tesla/SpaceX/Starlink?
Should the US even take the risk to act in a way that could prevent the next founder of such companies from creating its companies in the US?
Also to what end? Such a taxation wouldn't bring any sizeable money compared to the amount we're dealing with: $35 trillion of public debt, insane spendings, etc.
The total wealth of all the billionaires is $6 trillion. Where do you draw the line?
What about seizing all that wealth: the whole $6 trillion? (which wouldn't be worth anywhere near that amount the moment you'd seize it due to stocks and real estate crashing).
What I think: $6 trillion wouldn't even change a thing. We're adding $1 trillion of public debt every 100 days.
In the absolute best case, you "won" 600 days.
Truth is: there are people in power who hate the rich because they only one form of power, the state.
Be very careful what you long for.
https://www.axios.com/2024/08/23/kamala-harris-unrealized-ca...
Just for a second, imagine seeing the sale of roughly 5% of all stocks across the board... what would the side effect of that be? Since all of the very wealthy would be doing the same, that means that the prices will likely go down by more than 5% triggering more downstream sales.
It’s a closed system at the end of the day so the wealth isn’t vanishing into thin air.
Idea: tax loans taken out using assets as collateral at regular income tax rates. After all, that money gets used like regular income (living expenses).
The taxed amount can then be added to the basis when the asset is sold. It would be like reverse of depreciation calculations.
Set an asset and loan value floor so it only affects people with assets $10M+.
After all, regular people pay taxes on annuities, which are similar in structure.
Disclaimer: IANA-Accountant, but I am a taxpayer who tries to legally minimize my taxes.
In the context of home ownership, a loan using an asset as collateral translates to a home-equity loan or reverse mortgage. If you want to protect ordinary home-buyers, set an asset value floor of say $20M.
However, I think most share "pledging" [1] by the uber-wealthy is done using company stock as collateral, so you could restrict the tax further by having it apply only to loans taken against stock holdings over some similarly high value floor.
1. https://aaahq.org/portals/0/documents/meetings/2024/ATA/Pape...
I don’t think it’s as simple as this. This will end up catching normal people (any mortgage, automotive loan, etc) but may result in tricky accounting/loan structuring to avoid having literal collateral for the billionaires you’re trying to hit.
I don’t think that taxing unrealized gains is the solution either, but I also don’t think doing nothing is the solution. This is a very tricky problem without an obvious solution (and it doesn’t help that the ultra-wealthy can fairly easily influence lawmakers).
So just have it kick in above $5M/year or something like that, and have it only apply to securities as assets. Not a lot of ordinary people are taking $5M+/year in loans against their stocks.
Let them pay their taxes with stocks. Problem solved.
This is effectively similar to nationalization, along with the pros and cons that come with it.
Billionaires already routinely sell billions in stock "at once" (meaning, per quarter or similar, not a $1 billion limit order on Robinhood...), so on that one, we can empirically suggest "not much of an effect on the larger economy".
Randomly chosen examples:
https://finance.yahoo.com/news/bill-gates-liquidated-1-7-180...
https://www.reuters.com/business/autos-transportation/elon-m...
Now obviously things like transaction fees need to be factored in, and timing should matter - you should have the option to increase your stated value if something changes (or even to say "yes, okay, it's really worth X" and keep the item at the higher valuation).
It also has all the other problems with estimating the true value of an asset.
It's not like the money is just sitting, liquid in a vault like Scrooge McDuck.