That said, I don't see why there's a need for a deduction here. There isn't one for property taxes. Sure there is one when you sell your property at a loss, and that's also already the case when selling stock. Additionally such a tax like this won't ever cause you to lose your entire stock ownership as it's always based on a fraction of your ownership. And, last but not least, you could also impose caps or progressions.
And property taxes are deductible in the US. I’m not sure where you got the impression they aren’t.
In all seriousness, that is extremely unlikely to be the case, especially in broad terms. I mean, to purchase public stock at all you already must do so from a licensed broker, who mind you, is already required by law to report the cost basis of shares purchased by investors. To require them to regularly move 2% of shares owned by investors, to the government's ownership, would be rather trivial in cost to do. Hell, it could be completely automated.
And the cost of it doing that would likely be much less than property taxes, which, is a far less liquid asset, and much more costly to assess than equities, but is nonetheless profitable to tax. I mean the SP500 alone has a market cap of ~$47 trillion, which is, surprising almost the same exact value as the entire US real estate market, but much more liquid.
Additionally, whether it is even profitable at all could be besides the intent of the tax here. It doesn't necessarily have to be profitable, from which perspective, poor liquidity and changes in outcomes isn't a problematic at all. It could be even the intent.
> And property taxes are deductible in the US. I’m not sure where you got the impression they aren’t.
Okay fair. I suppose you could do something similar, but also don't see why it's necessary, just because we do so for other taxes.
Otherwise, when do you expect the government to actually realize its gains? If I have a house I intend to live in until I die and the govt take 2% of my stake away each year, when would it be allowed to force a sale to realize it?
Do I just lose my house once it has a majority stake? Does it just wait until I die? If it does, how is this better than an inheritance tax that is significantly easier to implement?
This seemed really reasonable to me until I started thinking about how it might work in practice. The sequence of returns can make this very difficult in practice, even if it makes sense on first blush.
By way of explanation: Let's say you're the founder of Pets.com in an alternate universe where unrealized gains have always been taxed (and unrealized losses can correspondingly be deducted). It's 2000, and you've just had an incredible run. You have also paid incredible taxes along the way.
Then your company blows up and goes to zero.
Now you've payed an incredible amount of taxes on your paper gains, and have realized no gains whatsoever. The entire enterprise resulted in an enormous real loss to you. Sure you can now carry forward those losses, but so what? You're never going to make up the difference, unless we're also letting your heirs carry forward those losses into the next century.
Who in their right mind would start or invest in a business under that tax code?
Who would dare invest a large portion of their personal worth in public equities given the risk that they plummet next year, as they did in 2022, 2020, 2008, 2001, 2000, 1987, 1962, 1929, 1907, and so forth?
Who would take a gamble on a big real estate development?
And so on.
It seems to me that a tax on unrealized gains massively disincentivizes investment and the creation of anything new, and therefore the only way to tax capital gains that makes sense is if to calculate the tax when someone takes their chips off the table. Issues like Buy, Borrow, Die are better addressed with other changes to the tax code that undo the weird incentivizes presently in place (e.g. eliminating the step-up basis, possibly at some threshold if the goal is to make the code more progressive), unless your goal is to actively disincentivize entrepreneurship and company building. Which if it is, I guess fair enough, but then none of us should be surprised to find ourselves with a lower standard of living in a decade as a result.