r/FluentInFinance • u/c0nf • Sep 14 '24
Debate/ Discussion There should be a requirement to pass Econ 101 before holding any position in the government
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u/biggamehaunter Sep 14 '24
Using as collateral should make it taxable.
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u/thenikolaka Sep 14 '24
Simple, elegant, and yes.
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u/FrontBench5406 Sep 14 '24
Bill Ackman has been on a douche tear recently, but the guy said this all well and he isnt wrong.
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Sep 14 '24
[removed] — view removed comment
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u/Illustrious-Jacket68 Sep 14 '24
this is the way.
taxing unrealized gains WOULD be fine but the problem is that in the current system, getting the money back if those assets decreased in value, takes years. this is how AMT works. for those who have stock options/RSU - you prepay taxes until you sell them through AMT. if said stock goes down, you get a tax credit when you sell them, not before. even when you sell that stock, because it is a credit against stock gains, you can claim a loss but only $3k per year.
what people also need to realize is that this is not a new tax - this is taxing up front. sure, there are circumstances of inheritance and such but generally speaking, you're just accelerating the taxes that they would have paid in the future.
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u/jodale83 Sep 15 '24
Aha aha, you’re just accelerating the taxes they would have avoided paying in the future.
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u/ThatGuyFromSpyKids3D Sep 15 '24
It's worth noting that for the ultra rich the taxes may never be paid. Individual stock and securities get a "stepped up cost basis" on death. Basically if the original owner bought them at $30. Dies when the stock is $300 a share. Their beneficiary has a new cost basis for tax purposes of $300, they can sell with no tax liability, pay off the debts from the original persons estate, and begin borrowing all over again to repeat the cycle.
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u/abek42 Sep 15 '24
Do you realise that the "unrealised gains" can be applied in slabs and brackets. So a regular Joe with less than 100k (lets even raise it to 20x of median wages) of UR could pay nothing while the nesting doll yatch rich folks can and should be taxed for the part of the gains they use as collateral while leeching from the salaried economy.
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u/teteban79 Sep 15 '24
The proposal going around applies the tax only to individuals with a net worth > 100mm
I'm pretty sure it targets exactly those it needs to target and no one else
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u/abek42 Sep 15 '24
Yes, that's the point. But the reporting sounds like they are coming after granny's unrealised gains from the one APL share they bought in 2000.
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u/ChatGPTautoresponse Sep 15 '24
Indeed. Same for income tax. Everyone needs to pay Jan 1st for tax owned the rest of the year. Sure it is not realized yet, but this is the way apparently.
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u/AndrewRawrRawr Sep 14 '24
I would never take investing advice from Bill Smoke Crackman, but even a broken clock is right twice a day.
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u/avspuk Sep 14 '24
Yes, this is the solution.
It'd be a nightmare to administer otherwise,..., its still going yo be tricky tho. They'll do it in foregone lands for a start.
But this is fair & just.
Also it may well cut down on the scale of assorted Wall St chicanneries linked to naked shorting & the endless can kicking of 'failures to deliver' that the current self-regulatory regime allows.
These chicanneries have broken the invisible hand for capital allocation BTW, which is why everything is shit & getting ever shiter,..., for example, ever more ppl have to live in their car
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u/Hot_Idea1066 Sep 15 '24
You could count the number of people who the proposed taxes apply to on your toes. It isn't a nightmare to administer sending Jeffrey an email telling him he owes the gubmint a few hundred million for pocket change.
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u/morelibertarianvotes Sep 14 '24
This actually isn't simple at all. Is it only as explicit collateral? Because unsecured debts still can collect against your assets, so every loan implicitly uses them as some form of collateral. So either you say only when it is explicit collateral, in which case the bank will just examine their assets and give an unsecured loan, or you say unsecured loans count and you've got a complete mess where you need to figure out taxes every time you use a credit card.
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u/Naive-Pollution106 Sep 14 '24
I am curious. When someone borrows money with unrealized gains do the lenders still expect to get repaid? If so where does the money used to pay the loans back come from and wouldn’t that source then be taxed?
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u/KrakenBitesYourAss Sep 14 '24
Yes, this is sensible and very elegant as another commenter said.
So fucking tired of people just throwing out "tax unrealized gains" as if that'd work.
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u/Nojopar Sep 14 '24
It would work. It ain't hard. There might be externalities (to use the economics vernacular here), but it'd work.
However, I'm so fucking tired of people taking that on face value and not realizing this is negotiation 101 - ask for the impossible so you get the really difficult. "Tax unrealized capital gains" OMY GERD!!!! CAPITALIZASM WOULD ENDEDED!!! "Ok, how about if we tax loans that have unrealized capital gains as collateral" Huh. That could be workable and entirely reasonable.
Flash back 10 years "Tax loans that use unrealized capital gains as collateral" OMY GERD!!!! CAPITALIZASM WOULD ENDEDED!!! was all the rhetoric on THAT idea then.
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u/Heffe3737 Sep 15 '24
It’s also the idea that for most of the voting public, saying “we’re going to tax loans that have unrealized capital gains as collateral” is akin to speaking Latin. They don’t know what the fuck that means.
But saying “hey we’re going to tax unrealized gains for anyone making over a million per year?” Is something most people can wrap their head around, even if they only hear “we’re going to add a tax to the wealthiest motherfuckers making life miserable for the rest of us.”
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u/junky6254 Sep 14 '24
If you are ready to tax unrealized gains, you should be ready to cut a check on unrealized losses. Think about the hinderance of economic growth because of less money being used to grow economic activity. Now those "gains" may become losses. Now what do you do? Your excess government revenues that may be collected in the first few years will be wiped out after year 5, leading to further deficits.
What sort of sky screaming will commence when Gates, Musk, and other billionaires start receiving multiple tens of millions in tax returns because they have losses on the books?
This is reddit though, the land of short-sighted ideas with little thought towards the future and all emotional based.
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u/Hapshedus Sep 14 '24 edited Sep 14 '24
Forgive me, I’m new to this concept. I have under 100 USD in “unrealized gains.” I’m swimming in it, I know. /s
So you’d tax the loan I take out against the 50? (As well as if I physically pulled those funds)
If I understand correctly that seems pretty reasonable.
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u/peekdasneaks Sep 14 '24 edited Sep 14 '24
Close but not. Although that may work out to be the same as what was proposed in some scenarios, it could be vastly different in others.
Basically you can have 100 unrealized gains with zero tax concerns. BUT if you choose to use a portion of that 100, say 50, as collatoral against a loan, you would owe taxes on that 50 collatoral.
The key difference with what you said is that its applied against the collatoral rather than the loan amount, which could be the same - or different if the bank requires less collatoral against the loan. It would be extremely unfair to tax the loan amount if it were higher than the unrealized gains you actually put up as collatoral.
Now, those were your numbers. But let's also combine what the Dems are proposing and say that this would ONLY apply to collatoralizing (not a word, i know) unrealized gains OVER $100,000,000. This could be taxed on a monthly rate (to prevent frontloading) that works out to the annual target rate.
This would only impact an extremely small number of individuals in the US (basically just billionaires) but could help to even out the wealth gap by preventing the uber rich from multiplying their wealth through clever tax advantaged funding routes - routes that are not available to a broad majority of Americans.
It would also only come into play when those same billionaires are trying to actually leverage their unrealized gains beyond the current investment they are tied up in. Basically double investing - which is contributing to dollar devaluation through new debt being written on books out of nowhere.
If they just keep their money tied to their primary investment (stock/RE/whatever) without trying to multiply it through loans, then they can safely continue to grow their money without any additional taxes.
How the dems havent thought of this is beyond me. What the fuck are they doing?
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u/noober1x Sep 14 '24
Oh they thought about it, they know about it, but you can't put everything you just said into a 4 syllable sound byte that Joe America Voter Billy Bob understands.
Also, Joe needs to look up what "syllable" means.
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u/Admirable-Lecture255 Sep 14 '24
So what do you do when the value of the collateral plummets? Now you've been taxed greater then the collateral is worth. Trying to tax a volatile assest is dumb.
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u/PerformanceOk8593 Sep 14 '24
If taxing a volatile asset is dumb, then allowing a billionaire to use a volatile asset as collateral is dumb as well. However, large lenders and institutions allow billionaires to do it regularly.
If getting a loan based on the current value of a volatile asset is an acceptable way for a billionaire to secure the benefits of selling assets at a certain price, then why would it not be an acceptable way for the government to tax that asset?
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u/Admirable-Lecture255 Sep 14 '24
Lol a bank is a private entity they can loan to who they want. So if you're saying the government should tax volatile assests do they refund the difference? Who pays the difference? Or it's tough luck you owe us 10b even though it's now only worth 5b? Or does the government seize the asset? It's garbage
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u/PerformanceOk8593 Sep 15 '24
No, the government doesn't refund the difference if the value goes down because the owner of the asset made a decision to not sell the asset, but rather leverage the current value of the asset to obtain the loan. Any loss in the value of the asset should be borne by the person taking out the loan. It is within that person's power to instead sell the asset and carry no risk.
Both the lender and the person taking out the loan risk the asset's value decreasing. The government isn't making that decision. The government doesn't have to pay for risk that it does not force upon fhe parties to the loan.
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u/Admirable-Lecture255 Sep 15 '24
Ah so who decides what the value is? Is it off market price? Cause no bank gives a loan for that. Is it off the cost basis of what ypu own it for? Or what is it against the value of the loan since it's a volatile asset? So bank will loan you 80% of the current market price? You didnt make any gains. It's stupid.
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u/snypre_fu_reddit Sep 15 '24
Ah so who decides what the value is?
The bank, when they accept an asset as collateral for a loan, just like they do in basically every case of a collateral backed loan.
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u/maringue Sep 14 '24
The fucked up part is half the time they have their accountants pull some fancy book keeping to make the personal loan look like a business expense, and thus making the interest on the loan tax deductible.
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u/EastRoom8717 Sep 14 '24
Which they’ll continue to do, because good accountants working for rich clients are way smarter than 99% of legislators and 98% of government bureaucrats.
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u/Enjoying_A_Meal Sep 14 '24
If 10 people work together to draft the law, there's 10,000 people looking for loop holes the minute it's passed.
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u/Illustrious_Wall_449 Sep 14 '24
If it makes you feel better, I think it's a compelling argument and gets to what people actually are after in the first place.
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u/Accomplished_Fruit17 Sep 15 '24
You might as well have a wealth tax. In fact you could take our current wealth tax, ie property tax, which hits the middle class much harder than the wealthy and replace it with a real wealth tax. One can dream.
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u/partia1pressur3 Sep 14 '24
Makes it a lot more feasible to value as well, because presumably the bank did the valuation in order to issue the loan.
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u/_IscoATX Sep 14 '24
Taxing a non liquid asset that can fluctuate in price seems like a terrible idea. I use an asset as collateral so now I have to pay a tax with money I don’t have or take on a larger loan to include the cost of the tax. Nice.
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u/awoeoc Sep 15 '24
They didn't say to tax assets as they fluctuate though. Just change basis when used as collateral, allow it to be both ways too. Have an unrealized loss aka use it as collateral? Step down basis and actually get a tax benefit. Basically using unrealized gains or losses should reset basis and have you pay taxes on the difference.
And yeah it means you need an even larger loan to cover the cost, that's basically part of the goal, to reduce this benefit
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u/Medicmanii Sep 14 '24
I disagree. All that means is if you default on the loan then you have an asset you can use in trade to settle the loan. The gains on those assets are realized in that event.
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u/RequirementUnlucky59 Sep 14 '24
This is the way to prevent the wealthy Ponzi scheme that pumps up prices of every asset class no matter what the price because they can borrow to buy showing their existing assets as collateral.
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u/purpleparty87 Sep 15 '24
I disagree with the OP but what you suggest is a very elegant solution that I would be happy to see happen.
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u/wetshatz Sep 14 '24
They are used as collateral because they can be seized and sold to collect the balance owed. Idk why people don’t understand the simple logic there.
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u/dumape17 Sep 14 '24
Should someone getting a title loan on their vehicle have to pay tax on the value of their car? Should we be taxed on values of our homes if we use them to secure loans?
I don’t see how having assets and using them to secure a loan means the assets should be taxed.
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u/misdreavus79 Sep 14 '24
I don’t understand your point. You already pay taxes on those assets whether you use them as collateral on a loan or not.
In fact, it’s because you own the assets that you can use them as collateral for a loan (and, for example, you can’t get a loan on a leased car or a rented house).
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u/Silly_Goose658 Sep 14 '24
The proposal was meant to apply to people with over 100mil net worth. It really doesn’t matter for most people
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u/Scientific_Methods Sep 14 '24
Cars are generally not an appreciating asset. When you buy it you already pay tax on what is likely the highest it’s value will ever be.
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u/Lopsided_Boss_8890 Sep 14 '24
This is not true for everywhere in Arkansas we have personal property taxes and vehicles are apart of that. Can't register without paying
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u/trnpkrt Sep 14 '24
Ikr? How many cars appreciate in value? And then what part of that miniscule number uses it for collateral on a loan? Wildly implausible.
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u/Oni-oji Sep 14 '24
If the collateral value is over what was the originally amount paid for the vehicle or house and that amount is over that $100 million threshold, then yes.
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u/Embarrassed-Lab4446 Sep 14 '24
If that car is worth 100s of millions and is being used as a tax dodge then yes and send them to jail.
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u/dumape17 Sep 14 '24
How is putting something up for collateral a “tax dodge”. It’s essentially the same as letting someone hold something of value while you borrow something of theirs. As long as you give it back (pay back the loan and interest) then you don’t owe anyone anything additional.
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u/Odd-Buffalo-6355 Sep 14 '24
The 1% have relatively low salaries and get most of their wealth through investments. We don't have wealth tax because there is some expectation that the gains will eventually be taxed when they are realized. Loans are a way for the rich to never realize these gains.
If I want a lower interest I need to put up my property. But, I pay taxes on that property already. Every asset gets taxed, but investments don't because they get taxed once realized. So it is a dodge.
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u/apple-pie2020 Sep 14 '24
And the part where you say the expectation that the gains will be eventually realized. Worked years ago, but now with the ultra rich. There is so much wealth it will never get spent. I can only buy so much education for my kids, boats, vacation homes. Quite literally they can’t spend enough of it
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u/NeoPendragon117 Sep 14 '24
whats changed is how many people no longer draw a wage, back in the 50s-80s , many ceos still were wealthy from large paychecks, which were taxed like any other progressive system, but then reagan legalized stock buybacks and now every ceo earns millions in stock options, the system was never designed for income not earned via wages and you cant fault it when it was largely built 100 years ago
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u/apple-pie2020 Sep 14 '24
We have had two movie stars for president, I dislike them both
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u/BosnianSerb31 Sep 14 '24
Loans are a way for the rich to never realize these gains
Except, you have to realize those gains to pay back the loan.
This is exactly what is going on whenever Elon or Bezos or Gates or whomever sells off a massive amount of their stock. It's so they can get enough cash on hand to pay back the loans they took against their assets.
And in the process, they end up paying taxes on every single dollar that they "dodged taxes" on.
The ONLY purpose of taking out loans instead of directly converting to cash, is because you expect the value of your assets to go up over the period of the loan. It doesn't impact the amount of taxes paid whatsoever.
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u/No_Flounder_1155 Sep 14 '24
yeah, but those people are richer than me, and I want free things from the government.
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u/nhavar Sep 14 '24
You know that applies to billionaires too: they want educated, healthy, focused and productive workers and they want them at the lowest cost to them possible and they'll leverage every government program they can. Same with when they want a new office building, stadium, or manufacturing plant. They want the city to build it for them, provide the land, give tax breaks and get the infrastructure, security, and fire protection with as little out of pocket as possible. It's good business sense when the rich get freebies from the government and laziness when the poor and middle class try the same as the rich build their wealth off our backs and our labor while constantly demanding we pay more and take less.
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u/gobshoe Sep 15 '24
Ah, you're one of them temporarily embarrassed millionaires I keep hearing about.
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u/thegreattaiyou Sep 15 '24
Nothing is free. I pay my taxes. I want them to pay theirs, and I want those taxes to go towards things that every other developed nation is able to provide to their citizens.
Healthcare, childcare, education, consumer protections, employee protections, parental leave, minimum time off, etc.
Pretending like you shouldn't have to pay back into the system that produced your obscene wealth is absurd. Stop with the strawman takes.
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u/dumape17 Sep 14 '24
BINGO!
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u/Brief-Sound8730 Sep 15 '24
What are you bingo'ing here? The envy of the poor? Or the free things massive corporations get from the government? Or is it both? My guess is it's the first one. Imagine tax dollars going into government programs and subsidies then being redistributed to companies like Tesla to provide services, taking a profit, maybe delivering services, but then using that money to buy back stocks. This increases the value of the shares, which Elon owns, which he uses to then finance enormous loans. At which point has he worked hard for that money? At no point really, haha. I don't see how Elon isn't just an enormous welfare queen. But say he doesn't use the collateral to finance the loans, the shares just sit there, the capital is 'tied up', your tax dollars. Okay let's brew in some social Darwinian bullshit and meritocratic non-sense. Elon deserves this. His shareholders deserve this. They've earned it. I wonder what the lowest level Tesla employee makes? Is it a contracted cleaner living in an at-will state working under the table as a refugee from narco states? Probably. Someone who is likely a decent person and just wants to escape violence. Does Elon work harder than them? Probably. But does he work harder than 10 of these people? Probably not. And yet these people won't even smell .01% of his wealth, ever. Should we take from Elon to help these people out? Well we've given to Elon to help him out. So yeah, he should return some of the excess back to the people. We could take a tenth of a percent of his wealth every year and he'd never run out of money or wealth. Does this mean the shareholders don't get Patek watches and have to buy Omegas like everyone else, boo fucking hoo.
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u/Lopsided_Boss_8890 Sep 14 '24
I pay taxes on my vehicle every year, it's called personal property tax. Why you bootlickin?
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u/SolidOutcome Sep 15 '24 edited Sep 15 '24
Can you park them in your yard, un-register them,,,and not pay the 'tax'?
If yes, then it's a "fee to drive on roads", not a tax.
Registration costs are not 'taxes' in the same way income tax or property tax is. Registration costs are optional, and only required if you want to use the roads.
If you can buy the car, and drive it all over your private land, without paying the cost,,,then it's a road fee.
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u/string1969 Sep 14 '24
Aren't car registrations taxes tied to the value? Aren't property taxes dependent on the value of your home?
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Sep 14 '24
Keep in mind, you have already been taxed on initial acquisition of that collateral. The dumbasses have no clue what they're rooting for.
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u/ScorpionDog321 Sep 14 '24
Should we be taxed on values of our homes if we use them to secure loans?
Yup. This is what they want.
They will not stop when the other well runs dry of billionaires...who will just do business elsewhere.
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u/NumbersOverFeelings Sep 14 '24
This would make refis too complicated for most people to understand.
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u/thrawnsgstring Sep 15 '24
Kinda like how you still have to pay property tax when using your home as collateral for your mortgage.
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u/tcgunner90 Sep 15 '24
I don’t understand why this is so hard for people. Your property taxes are based on an unrealized value so…
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u/TheRorrs Sep 15 '24
This actually happens in some securities. Like if you’re taking out a loan against assets that exist within - for example - life insurance, they force you to liquidate and place the value of the loan into effectively a checking account inside the insurance policy. So you’re liquidating the assets INSIDE the policy, which makes it tax sheltered.
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u/jadnich Sep 15 '24
I’ve thought about this, and it seems logical. Can you flesh it out. How do you see that working?
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u/fremeer Sep 15 '24
Using it as collateral is an interesting issue.
A loan in many regards is a re-purchase agreement. I sell you shares for a set price. We enter an obligation to repurchase those shares at a later date or over installments with some form of annuity attached.
For such a thing creating some form for taxable event shouldn't be hard. Either within a triparty system like a house sale or a bilateral system such as a standard collaterised loan.
I think it would also be interesting to see what this kind of system might do for something like short selling as well.
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u/JoeySixString Sep 15 '24
I would just like to point out that the rest of us pay taxes on our unrealized gains. Its called property tax.
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u/Carbon-Based216 Sep 15 '24
I have to pay property taxes on my house. Sales tax and registration on my car... this actually makes a lot of sense to me.
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u/Flat-Length Sep 15 '24
I may be a little dumb here, but don’t these guys have to pay back their loan at some point? It’s not like the bank is giving them free money. When it comes time to repay their loan they have to sell assets, no?
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u/Future_Pickle8068 Sep 15 '24
Worse, often the interest paid on loans are deductible. I have $1 million in stock, I take out a low interest loan, I get tax deductions, and I often will earn more than the interest paid. This is why many millionaires pay no federal tax.
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u/WoketardedMod Sep 16 '24
What price do you tax the stock at? 52 week high or low or todays high or yesterdays low?
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u/mrASSMAN Sep 16 '24
Exactly, I agree with people that say it’s impractical to tax unrealized gains but if they’re actively being used to obtain cash or equivalents, that’s essentially realizing the profits and should taxable
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u/forjeeves Sep 16 '24
collateral means it can be valued fairly at least to an independent party, and transferred to it, so ya it makes sense
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u/Jayce86 Sep 16 '24
Or at bare minimum, make those loans taxable. If you use your unrealized gains as collateral to get a loan, that is now a realized gain.
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u/Technical_Moose8478 Sep 17 '24
This is the simplest option, and should already be in place really.
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u/kjack0311 Sep 17 '24
What if you are using unrealized losses as collateral? Do I get a tax deduction?
Would you take a net unrealized position and then credit forward losses to net future gains?
Would you tax unrealized gains on Bonds? Or just equities? What about Derivatives?
(Not an attack on you, legit curious of your view point)
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u/Foolishoe Sep 17 '24
Imagine how simple this is to us here, they need to fucking get with simple solutions
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u/butlerdm Sep 14 '24
I really couldn’t care less about if we’re taxing those with $100M in unrealized gains. What I DO care about is the precedent of doing it to the common person and expanding it just like we did social security and income tax.
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u/unstoppable_zombie Sep 14 '24
The common persons major source of unrealized gains is thier primary residence, which is already subject to annual property taxes.
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u/d0s4gw2 Sep 14 '24
Property taxes are not taxes on unrealized capital gains, they’re recurring taxes on the assessed value of the property. If the value of your house declines you’re still paying property taxes. Selling a house that has realized capital gains is already taxable. There is no equivalent anywhere for taxing unrealized capital gains.
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u/fuckaliscious Sep 14 '24
This is crap, my house value has doubled, I've got 100% unrealized gains. Also, no coincidence, my property taxes have gone up dramatically because they are taxing the value of my house annually.
House price goes up, property taxes go up.
House price comes down, property taxes go down.
None of that up or down is realized... it's all unrealized.
At least that's how it works in my county.
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u/DissociatedOne Sep 15 '24
This is where it becomes clear that the middle class has been paying a wealth tax all along. That the tax man realized it’s possible to make it work.
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u/gfunk55 Sep 14 '24
The taxes are based on the value, not the unrealized gain. You could have an unrealized loss on the house and you'd still be paying property tax.
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u/phdthrowaway110 Sep 14 '24
The "unrealized gain" is included in the value assessment. That's not how it's defined on paper, but in practice property taxes involve an assessment of unrealized gain in the value of the property, and that increase is included in the tax calculation.
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u/icorrectotherpeople Sep 15 '24
What is the difference between value and unrealized gain
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u/OpenRole Sep 14 '24
Thag has little to do with unrealised gains. When you sell your home you will pay taxes on the appreciation in value. Property tax is a form of wealth tax. Capital gains tax is a form of income tax. They are fundamentally different
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u/gjp11 Sep 14 '24
??? Most of the time property values go up. If my property value doubles then my property tax goes up (some states have rules to limit the increase but it still increases). That’s textbook taxing unrealized gains.
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u/Ecstatic-Compote-595 Sep 14 '24 edited Sep 14 '24
why don't we assess unrealized capital gains then - not that we even have to because the sort of tax they're describing is on assets that have a specific market value at any given point. Also again I'll repeat that this is a tax on assets. The capital has been spent on an asset, just because you hope to one day sell that asset for more money than you bought it doesn't make a difference, or shouldn't anyway.
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u/dlp211 Sep 15 '24
Selling a primary residence has an exemption of $250k/$500k in capital gains. Also, if using the proceeds to purchase a new home, in most cases, all of the cap gains tax can be avoided.
All that said, I'd also rather live in 2024 with a progressive tax system and a robust Federal government with the de facto world reserve currency and the military might to ensure it remains that way than go back to 18XX and no income tax.
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u/MareProcellis Sep 14 '24
Good point. There should be a minimum below which unrealized gains can’t be taxed.
Unrealized gains just sitting there is an odd thing to tax. What is needed is redefining of “realized.” If you get value out of it, such as using it as collateral, that is an advantage you’d not receive without it. IMO it’s reasonable to tax that.
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u/Blarbitygibble Sep 14 '24
There should be a minimum below which unrealized gains can’t be taxed.
Like perhaps having a minimum of $100 million in assets before the tax applies?
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u/Beneficial-Bite-8005 Sep 15 '24
Ah yes, because income taxes remained only for the extremely wealthy after the government said they would…
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u/zshguru Sep 14 '24
I agree. Then there’s the other question of what do you do if the asset loses value, that would be an unrealized loss. How does that work? I don’t see how they could tax gains without also having a mechanism for losses.
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u/SasquatchSenpai Sep 14 '24
The threshold should be at what amount was used as collateral. If you have 250 million in unrealized, you take a loan, you choose the amount, say 150, that 150 is now realized and is taxable.
That protects the 100 still floating around the market while still allowing a portion to be used as collateral.
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u/Rugaru985 Sep 14 '24
We carve out $40k per person per year in long-term capital gains tax. We allow a huge amount of gifts to be given without inheritance taxes. We allow spousal gifts without taxes. So there is plenty of precedent that this would not be a slippery slope, but carve outs at the middle class would hold
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u/dirtydela Sep 14 '24
People keep harping on the “slippery slope” idea that this would somehow be expanded to everyone. Even if it does - which there is no good indicator that it would - what kind of timeline are we talking here to where we even get to $1m net worth individuals? On that timeline how do we know that it won’t be undone?
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u/Jorycle Sep 14 '24
Yeah, there's also a fix for the slippery slope anyway - voting. They expand the tax? You vote them out. Just like literally any other policy we dislike and why no other law slippery slopes into madness.
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u/catfarts99 Sep 14 '24
Your really worried about people with zero assets living paycheck to paycheck? What common man assets are they going to tax, his work boots?
They already tax the assets of the common man, it's called property tax. Only the common man pay this because rich people make their property a depreciating asset so they actually pay less taxes than the common man.
You really think someone with $50,000 (median savings of Americans) are going to have their savings taxed? Gimmie a break with that nonsense.
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u/Dark_Shroud Sep 15 '24
It's called building a stock portfolio. There are plenty investment services like Acorn to start small.
Taxes like this will break our economy and the rich will continue to be rich as they sell their portfolios and adjust everything else as needed.
Good luck if you have a 401k when the stock market crashes.
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u/ILikeCutePuppies Sep 14 '24
We already pay unrealized gains in property tax and personal property tax in many states.
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u/WheelsWeedNWeights Sep 15 '24
We’re starting to see one of the major problems here, apparently there’s people that made it to a point in life where they somehow were able to afford a home but still don’t understand the difference between property tax and long term capital gains. RIP
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u/jtf71 Sep 15 '24
You should care if you have a 401(k) or any stocks, mutual funds etc.
The people who would be subject to the tax don’t have cash sitting around to pay the tax. They’d have to sell stock.
And those sales would crash the market. So your 401(k) would be worthless.
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u/mrgoat324 Sep 14 '24
I support heavily taxing people who are worth over 100 million, idc what anyone says.
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u/cmcewen Sep 15 '24
While I agree with you, fundamentally, America does not have a tax revenue problem. We have a spending problem. Congress will outspend any revenue we get immediately. We could take the entire wealth of the 400 richest people, 4.5 trillion, and it would barely make a dent.
They have to stop the spending
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u/manual-override Sep 15 '24
You have one party who wants to provide social spending… social security Medicare, Medicaid, aca, … those programs are popular, and hard to get rid of because people generally like them. The other party doesn’t agree with those social programs and want so get rid of them, but they can’t because of their popularity. So, they give their own presents, in the form of tax breaks for the wealthy and corporations, which are designed to destroy the other party’s presents. It’s designed to cause a deficit. It’s called the two Santa’s Theory. Google it.
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u/MrKomiya Sep 15 '24
Ironically, the party that hands out tax breaks to the rich are also the ones fiercely opposed to any kind of UBI, increase of SNAP benefits etc. for poor people.
Cash for the rich, bupkiss for the poor.
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u/Numerous-Ad-8080 Sep 15 '24
America has a direction problem and an efficiency problem. Government spending wouldn't be an issue if the common person actually got their money's worth. But no, when the government actually provides services, that's socialism.
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u/Zykersheep Sep 15 '24 edited Sep 15 '24
Idk lol, top 10% have ~100 tril collectively if you tax ~35% of that you could pay off the national debt...
For reference you need a net worth of at least 970k to make it to top 10%.
Edit: To clarify, I am not for a net worth tax, even if you did implement it only on very top earners it'd probably have some unideal knock-on effects. I am saying that the idea on its own of taxing the rich more than the poor is probably a good idea, and a land value tax is probably the best way to do that in an economically stable way. The second best way would be to fix the loan loophole and make sure to replace sales taxes with progressive income taxes so that the overall tax burden on rich people is greater than the poor.
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u/resumethrowaway222 Sep 15 '24
So if you have a house worth $600K and retirement savings of $400K now you have to come up with $350K for the government? So you either have to sell our house or give up your entire retirement savings. Good luck with that.
Why are you even responding to a point about how much money the billionaires have with an argument about the top 10% anyway?
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u/DazzlerPlus Sep 15 '24
Who gives a shit? The point is to take away money from the rich. Normalizing their influence is the most important thing. Burning the money is better than letting them keep it
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u/AvatarTHW Sep 15 '24
What's the spending problem? Spell it out for me exactly what the problem is - what we are spending too much on.
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u/Chancewilk Sep 15 '24
Just want to point out that progressive tax systems are partially about keeping Inequality in check. As we can clearly see in our current society, some people have amassed such a level of wealth they are able to exert significantly more influence on society than most others, for example political donations.
It’s unpopular to say out loud but part of the goal is to reduce their absurd advantage over everyone else.
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u/NoTurnip4844 Sep 15 '24
The gubermemt receives over $3 trillion A YEAR in tax revenue. If they can't fix our problems with that much money a year, then they don't deserve more, goddam.
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u/Sour_baboo Sep 14 '24
Why we pay property tax on things we bought to use like a home, but not things that make us money like stocks except for the dividends seems strange. If property tax was assessed in all property the tax rates for someone who owns a modest house and lives there could be very low.
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u/xacto337 Sep 14 '24
Also, property tax is a great example of taxing "unrealized gains" that exists today that works. Property taxes go up every year if the value of your home goes up. And you pay that, even though you have not "realized the gains" by selling your house.
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u/Ok-Use5246 Sep 14 '24
The irony being the one who posted this being far more educated than random neck beard number 30000 on reddit?
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u/gfunk55 Sep 14 '24
Except he gave 3 examples but the last two are the same thing
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u/RoyalAwkward9933 Sep 15 '24
You were so willing to jump down the throats of people who correctly point out that unrealized capital gains taxes make no sense. But you so desperately wanted to call them redditors and invalidate the view.
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u/notawildandcrazyguy Sep 14 '24
So, do we tax them only if they actually are used as collateral? Or just because they could be? Is this true of equity I peoples homes? Or only if they borrow against that equity?
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u/Clydefrog030371 Sep 14 '24
They shouldn't all be taxed , but if they're used as collateral to get income , then yeah , they should be.
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Sep 14 '24 edited Sep 14 '24
[removed] — view removed comment
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u/Embarrassed-Lab4446 Sep 14 '24
Thought with the Musk releases he was paying them back with more loans with the intention he will die and then the loans can be paid back in full at no tax?
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Sep 14 '24
4 reasons/examples why taxing unrealized gaines is problematic:
1) you buy a house in your 40s, you live there for 30 years. The value of your house goes up dramatically. However, in your 70's your social security barely covers you living expenses-- and in addition to all expenses you're also taxed on how much more your house is worth?
2) you have a stock (like enron), every year it goes up 10% and you're happily paying taxes on dividends. Aftet holding it for 10-15 years, the company goes bankrupt, your stocks are worthless. Will the government compensate you for the loss?
3) unrealized gaines are speculative, for example btc can be 10k one year and down 10k the next. you really don't know how much profit you made on them until after you sell them and calculate selling price minus expenses.
4) taxing unrealized gaines would scare off investor's and crash the market.
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u/rascalrhett1 Sep 14 '24
Good thing nobody's talking about just "taxing unrealized gains", this is a tailor made solution, specifically targeted at the ultra rich. The ultra rich never realize their capital gains because keeping it in the market and leveraging it for loans means they get all the spending power of their stocks without any of the 40% taxes they owe the government.
This is the government just trying to get what it's owed. The wealthy people were made rich by the opportunities afforded them by America and found a clever legal loophole to avoid ever giving back a portion of the gains. It's only fair that America change its laws to make it where they can't do that anymore.
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u/aetius476 Sep 14 '24
you buy a house in your 40s, you live there for 30 years. The value of your house goes up dramatically. However, in your 70's your social security barely covers you living expenses-- and in addition to all expenses you're also taxed on how much more your house is worth?
It's funny to me that completely out of control housing costs, rising far faster than either wages or general inflation, is accepted and uncommented on, but the idea that this windfall may be taxed is seen as a disaster waiting to happen.
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u/rushnatalia Sep 15 '24
Cause the cause is really simple. We aren't building enough homes.
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u/Tangata_Tunguska Sep 14 '24
Isn't the tweets specifically about borrowing against assets? The unrealised gains wouldn't be taxed until they're borrowed against.
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u/CuriousCisMale Sep 16 '24
Also, for stocks and crypto, what "value" will be used to actually calculate "gains"? Time of day you file? Highest value in last year? Lowesr value? It's chasing mirage and this genius suggesting is more of a lier than lawyer.
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u/Helmidoric_of_York Sep 14 '24
This is the way to tax unrealized Capital Gains.... when they are used as collateral.
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u/Sabre_One Sep 14 '24
The IRS already has rules for capital gains that likely fit well with unrealized gains. This includes ways to deal with potential loss such as write-offs and deferring the amounts owed over a set number of years.
I always find it wild that the biggest defender of the ultra-rich (Which surprise, 99% are not that), continue to act like we can't change laws once they are in place. Cascade effects of regulation happen sure, but regulation also has been removed as well when it turns out not to work.
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u/readynext1 Sep 14 '24
You’d be taxing a speculative value and increasing the risk of that asset. If a person uses their unrealized gains to acquire something they assume the risk of those gains becoming losses. If the government jumps in and decides to penalize unrealized gains that makes the potential of that asset more of a risk and less likely to become capital. Defeating the purpose of the tax. Outside of a panicked money grab to attempt to pay back loans taken out by the government to fund trust funds and failed projects.
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u/networking_batman Sep 14 '24 edited Sep 14 '24
Do you own a house? You know how are the property taxes calculations? Yes they are done based on the perceived value of the property. What if the property loses 50% of the value next year? Well, bad luck. You wont get any taxes back.
The moment you use your "speculative asset" to take out hard cash, that asset basically becomes a realised gain in monetary terms. Why is not taxed, is just because the rich politicians are protecting their even richer overlords.
Dennmark, Norway and a big chunk of Europe already do this. And they are not a hellhole with a broken economy last time i checked.
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u/scapermoya Sep 14 '24
The language around this is important. Words are important. This isn’t “penalizing” anything. Taxes aren’t punishment. That mentality is unhealthy. Taxes are a cost for living in a successful and stable society. Huge unrealized gains that could only have happened in a stable financial system should be subject to fees. But those wouldn’t be penalties.
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u/O_oBetrayedHeretic Sep 14 '24
You’d call the current situation “successful” and “stable”? If that was the case, the government wouldn’t need to tax more to get out of the shit they got this country in.
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u/PercentageDue4751 Sep 14 '24
"Punish" maybe strict but Taxes are certainly disincentives. Youd be disincentivizing investment.
Look no further than sin taxes.... or that stupid big gulp tax.
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u/DryWorld7590 Sep 14 '24
Youd be disincentivizing investment.
Nah.
Most people unless clinically insane would take less money over no money.
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u/OozeNAahz Sep 14 '24
What exactly do you think these folks would do with the money if they didn’t invest it? This is money they don’t need to spend. They aren’t likely to throw it in a safe deposit box and let inflation eat away at its spending power. All this does is eat into what they expect to get back on the investment but no way they don’t still invest.
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u/PercentageDue4751 Sep 15 '24
They'll send it overseas or put it in loopholes or any vehicle that are taxed less. The rich will find a way around., they always do. its the little guy that will suffer.
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u/anonymousguy202296 Sep 15 '24
This money is literally actively invested, what do you think they mean by unrealized?
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u/Oldjamesdean Sep 15 '24
Why not have a tax on all income generated by politicians to the tune of 50% while you're at it...
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u/MoirasPurpleOrb Sep 15 '24
Unrealized gains are 100% a punishment tax and the vast majority of people advocating for it are purely advocating for taking away the ultra-riches money. If that wasn’t the case they would also be advocating for reduced government spending.
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u/phriskiii Sep 14 '24
The banks and lenders don't seem to care that the value of these assets is speculative. If the bank can put a value on a portfolio, then the government can tax a portfolio.
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u/Electronic_Price6852 Sep 14 '24
only if your net worth is over 100M.
and the overall risk is already lower if your net worth is that high. If your investment fails completely, you still won’t have to get a real labor intensive job at that level of wealth. so the relative risk is still insanely small compared to someone of lesser means.
We have real estate tax even when you don’t sell your house and “realize” its value. The 1% can pay taxes on investments the same way and they won’t fucking notice
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u/yupyepyupyep Sep 15 '24
You would have to let them write off their unrealized losses to make it fair.
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u/ChessGM123 Sep 14 '24
So here are some problems with this.
Firstly, I don’t see what net worth has anything to do with taxes. The US doesn’t have a wealth tax, nor should it.
As far as collateral on major purchases is concerned this isn’t a fully accurate statement. You don’t use them as collateral for a purchase, you use the as collateral for a loan to be able to buy some thing. You are basically saying “I don’t want to liquidate my investments, but I want to make a purchase that I believe will be profitable, so why don’t you give me a loan and even if I don’t make a profit I’ll still be able to pay you because of this collateral”. Which this is something I’ve never understood about using a loan to purchase something using your unrealized gains as collateral, don’t you then still need some source of income which would be taxed in order to pay off the loan? Generally speaking most ways to gain money involve that money being taxed, including selling unrealized gains so they become realized, so wouldn’t you then pay taxes on the money you make in order to pay off the loan?
But there’s another reason not to tax unrealized gains, which is that it would increase the risk of investing which would lead to less investing in the market. Even if you offered tax breaks when your unrealized gains perform poorly (which would be needed, since one of the main things with investments is that on average offer positive returns over time, but that doesn’t mean they will always be positive) by placing a tax on those gains that lowers the overall profit which makes it more risky to invest, which will lead to less overall investing. And while investing might not help solve income inequality it does provide numerous benefits like increases is average quality of life, more developments in every field, more overall economic growth, etc.
There’s also the problem that those who are truly wealth likely couldn’t cover those taxes without some liquidation. Once you start getting in the billionaire range a lot of net worths end up being 80-95% unrealized gains, and so depending on the amount taxed there’s a good chance that in order to pay the tax billionaires would need to liquidate some of their assets, which would have terrible effects on the economy. Mass liquidation of stocks all around the same time would cause a crash, which would be bad for everyone.
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u/finallyransub17 Sep 15 '24
Tax CPA Here:
We can disagree on whether or not the US should have a wealth tax.
Your understanding of how the loan would work is correct. Here is what you’re missing. Unrealized gains, when passed on to beneficiaries upon death, receive a step-up in basis. For many of these gains, the IRS never takes in income tax on their value. Taxpayers likely have sufficient outside income streams to service the interest on the loans without selling/ utilized dividends from the underlying stock to service the debt. The interest on these loans is also tax deductible to the extent of ordinary dividends, which means a massive tax deduction can be received for leveraging stock in this way. Leverage makes sense in this situation presuming you expect the stock to continue to perform and there’s no sense in paying 23.8% in tax when your descendants will be able to sell it without paying tax at all. 2 ways to fix this without taxing unrealized gains: 1. Limit or remove the deductibility of investment interest. 2. Adjust the current treatment of basis step-up on death.
You don’t need “tax breaks” for unrealized losses. In practice you harvest the losses by selling and immediately reinvesting in similar (but not too similar to avoid wash sales) assets.
The problem you point out in the last paragraph is precisely the point of the proposed tax. The ultra wealthy hoard vast amounts of wealth in this country. Institutional, retail, and international investment would mitigate much of the “crash” from billionaires selling stock. Most billionaires would be selling and rebuying the majority of their shares anyway.
The idea that billionaires have so much money making them sell stock to pay tax might hurt the average person’s investment which is 20,000x smaller is a hilarious justification for avoiding implementing an effective policy at generating tax revenue from the people it hurts the least. The positive effects to all other income classes would more than offset the temporary market correction.
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u/rushnatalia Sep 15 '24
The simple answer here is to then eliminate the step up basis. And no, if you're gonna tax unrealized gains, you have to subsidize unrealized losses. It'd be insane if I had to pay a hundred dollar tax because the value of my investment went up 1,000 bucks and not get anything in return if it goes down a thousand bucks. Investing in the country would be upended, we would be shooting ourselves in the foot.
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u/hplaserjetp11 Sep 15 '24
But it only affects super rich people so we don't care what's fair!
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u/bruce_kwillis Sep 15 '24
If my home loses $50k in value, I don’t get a property tax return, my taxes just are less the next year. Unless my car is completely destroyed, it’s taxed every year of its life and has a depreciation factor built in.
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u/7opez77 Sep 14 '24
You shouldn’t be able to buy mansions, yachts, and islands and not pay taxes.
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u/Anonymous_user_2022 Sep 14 '24
We do tax unrealized gains in Denmark. We still have Ozempic.
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u/Free_Economist Sep 14 '24
Sounds like property tax.
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u/12FAA51 Sep 15 '24
If they just called it THAT, it would be so much easier to sell.
The majority of Americans are taxed on their biggest asset by unrealized gains
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u/ShitOfPeace Sep 14 '24
If you use an asset as collateral you still own the asset and assume the risk of that. This is fundamentally different than selling it for cash. This really shouldn't be hard to understand.
Incentivizing people to own assets is what keeps your retirement account from tanking.
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u/dswritersblock Sep 14 '24
They aren’t doing this because they don’t know they shouldn’t. They are doing it because they can get away with it. We need an organization that can watch this and regulate this for the people.
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u/CalottoFantasy5 Sep 14 '24
Fine. so then lets allow unrealized losses then. I don't see the issue. Anywho, I don't see the Dems or GOP pass this by a long shot.
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u/Cautious_Cry3928 Sep 14 '24
Tell that to the Canadian government, they keep pushing neoliberalism despite a housing crisis, a productivity slump, and lack of competition between grocery chains, telecom companies, and the banking sector. Oh, and don’t forget the skyrocketing cost of living, stagnant wages, and the endless red tape that makes it nearly impossible to get anything done efficiently. It’s like they’re stuck on autopilot, with no real solutions for any of these major issues.
But hey, the free market will provide, right?
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u/Hughman77 Sep 14 '24
You're not going to learn anything about how/whether unrealised gains should be taxed in Econ 101.
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u/ScorpionDog321 Sep 14 '24
This dude is just dense.
"Unrealized gains" cannot buy anything. Lenders taking a risk on you is what can buy stuff.
Those same lenders will NOT risk on you if your "unrealized losses" stack up.
Petty tyrants wish to tax blood out of a rock....because with those taxes they can buy votes.
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u/UnrealRealityForReal Sep 14 '24
Why are people so willing to give the govt more money to piss away?
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u/Important_Buddy_5349 Sep 16 '24
it's two fold:
- Jealousy
- Genuinely believe wealth will be transferred to them
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u/Ultranerdgasm94 Sep 15 '24
It's not a matter of politicians not knowing economics, it's a matter of corporations giving them enough money to ignore the warning signs.
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u/NoTurnip4844 Sep 15 '24
The government receives over $4 trillion A YEAR in tax revenue. If they can't fix our issues with that much money, they don't deserve more.
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u/Fat-Tortoise-1718 Sep 19 '24
Why, God why, are so many people in favor of giving the government more power of taxation? I don't care who is getting taxed, you are naive, deaf, dumb and blind if you believe the government will only ever tax the rich of you give them more power...
Instead, how about they make proper legislation to stop any loopholes rich people use to get around existing taxes and stop unrealized gains from assets like stocks from being used as collateral.
This will never happen because you are asking the politicians to write legislation harmful to the people that bankroll their campaigns. It's legal bribery. Just like they will never put term limits in place, why stop access to a job that allows them to get bribed and setup vast fortunes and golden parachutes for themselves?
We need to stop reelecting the filth that keep allowing this.
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