The Democrats want to tax unrealized capital gains…
…but only for those selfish, greedy billionaires, who of course don’t deserve their money – or, in this case, their potential money.
Right? Right? Just like the original income tax proposal, this is only for the very very very rich.
The Biden administration isn’t through trying to mess with people, and sometimes succeeding. So now we have this:
President Biden’s $2 trillion spending package continues to stall as senior Democrats are hoping to finalize a proposal on a new annual tax on billionaires’ unrealized capital gains, Democratic leadership has indicated.
“We probably will have a wealth tax,” House Speaker Nancy Pelosi (D-Calif.) confirmed Sunday on CNN.
The proposal, which is being reviewed by Senate Finance Committee Chairman Ron Wyden (D-Ore.), would impose an annual tax on unrealized capital gains on liquid assets held by billionaires, Treasury Secretary Janet Yellen said.
“I wouldn’t call that a wealth tax, but it would help get at capital gains, which are an extraordinarily large part of the incomes of the wealthiest individuals and right now escape taxation until they’re realized,” Yellen said on CNN.
The proposal would likely only affect less than 1,000 of the nation’s wealthiest citizens, according to the Wall Street Journal.
A few wild guesses here: (1) Whatever level of rich person this proposed tax would reach, it would stop short of affecting the very very rich Nancy Pelosi (2) It wouldn’t stay at 1000 billionaires (2) the billionaires would mostly manage to evade it in one way or another, but the insane precedent of government taking unrealized assets would be set.
And don’t you just love Yellen’s reformulation of the idea of unrealized gains, which are now merely gains that have “escaped taxation until they’re realized.” See, those gains are escaping the clutches of the IRA by being just on paper, and we can’t have that, can we?
Do Manchin and Sinema think this is just peachy keen? And what about all the other Democrat members of Congress who hold themselves out to be moderates at election time in order to appeal to more moderate voters in states that aren’t true blue, and who nevertheless vote “yes” on all the leftist bills the Democrats propose? What do they think?
You can do almost anything you want to billionaires because so many people have the notion that so much money in one person’s (or entity’s) hands is “obscene” (a word I sometimes see used). But the bell will toll for thee, and doing something to just a few billionaires doesn’t make it right. But it makes it something that most people won’t care about, because after all – billionaires.
It is Senator Wyden and the Senate Finance Committee who have been “looking at this.” In fact, they’ve been “looking at it” – and salivating – for quite a long time, although none of the current articles I’ve read mention it. But I wrote a post on the subject in April of 2019, when Democrats were proposing something related but slightly different.
At the time I wrote that post, the proposal’s details were hard to discover, and I was guessing at some of them. The post is long, and I suggest looking at it. But the most important thing to remember is that Democrats have been planning this sort of thing for a long time, and not just for billionaires, either.
For example (from an article written in March of 2020):
The Wyden proposal [as of March 2020] would apply to anyone with at least either $1 million in income or $10 million in assets for three consecutive years — with complex exclusions. In computing the value of assets for the $10 million threshold, for example, the proposal would exclude the first $2 million in personal residences, the first $5 million in family farms and the first $3 million in retirement portfolios.
However, many questions remain about which taxpayers would be subject to the Wyden proposal and how it would treat individuals moving in and out of the new regime.
I also notice that in MSM articles about the current proposal the word “billionaires” is often emphasized, for obvious reasons. But here’s a caution from my April 2019 post, involving the history of the income tax:
The main argument for ratification [of the 16th Amendment] was that the amendment would force the wealthy to take on a fairer share of the federal tax burden that had in the past been largely carried by those earning relatively little…
Rep. Cordell Hull introduced the first income tax law under the newly adopted Sixteenth Amendment. He proposed a graduated tax starting with a 1-percent rate for incomes between $4,000 and $20,000 increasing to a top rate of 3 percent for those earning $50,000 or more. The House Ways and Means Committee called upon citizens to “cheerfully support and sustain this, the fairest and cheapest of all taxes. . . .”
The first tax collection day under the new law took place on March 1, 1914. Since the average worker earned only about $800 a year, few people actually had to pay any federal income tax. Less than 4 percent of American families made an annual income of $3,000 or more. Deductions and exemptions further shrank the pool of taxpayers. Nevertheless, the federal government collected $71 million that first year. Millionaire John D. Rockefeller alone paid an estimated $2 million.
All in all, most Americans thought the new tax was a great idea. One taxpayer wrote to the Bureau of Internal Revenue, “I have purposely left out some deductions I could claim, in order to have the privilege and the pleasure of paying at least a small income tax. . . .”
Once the camel gets its nose in the tent, it will ultimately get the whole body in, and then some.
The Wise Owlita is such a god-awful liar.
But then it doesn’t matter, does it….
Wonder how this would affect somebody like Bill Hwang who was worth something like 20-30 billion at the start of the year but is now worth nothing.
BTW salivating over huge sums of money is nothing new. Back in 2009/2010 the feds were salivating over the huge amounts of money being made in the student loan industry so they nationalized it. Of course the media kept that on the down low. You know, if the average college student realized how much the dems were figuratively screwing them over they might not blindly vote for them and we can’t have that.
And will Uncle Sam send me a refund of some sort when I experience an unrealized capital loss the year after he hits me with an unrealized capital gains tax?
(I *detest* the phrase “I’ll wait” that so many on social media use, when they think they’ve got you in a gotcha, and I’ll *never* use it. I’ll just inquire, “HMMMM???”)
BigD:
Well, as the illustrious Pelosi would say, we have to pass the bill to find out.
Where are they going to get this cash to pay the tax?
Sell massive amounts of stock?
That’ll be great. It’ll make December or certain other strategic dates a crazy time for the market as Bezos, etc. dump millions of shares of stock.
I mean it’s not like millions of people, pensions, etc. own stock and will be affected by this dumping.
The nation (unwisely) passed a constitutional amendment permitting a federal income tax. Where is the authorization for a federal property tax? Even without the outrage of taxing unrealized gains, what makes this legal?
Taxing unrealized capital gains sounds like something you’d expect from some economically illiterate rando on Twitter. Wouldn’t it simply make more sense to eliminate capital gains taxes entirely and just tax all income equally?
However, while I don’t begrudge anyone for the money they earn, if you look at the continuing rise of income inequality in the U.S. and DON’T understand how the system is in fact rigged to benefit those on top, you’re not much better than some Twitter rando.
Mike
The nation (unwisely) passed a constitutional amendment permitting a federal income tax. Where is the authorization for a federal property tax? Even without the outrage of taxing unrealized gains, what makes this legal?
Direct taxes are permissible if they are apportioned among the states. That was unweildy, so the income tax was pursued and enacted. The problem isn’t the income tax per se, but the free hand Congress has in defining taxable income, which generates mega carve-outs for favored economic sectors. Also, from about 1936 to 1982, terminal marginal rates were unreasonable.
Wouldn’t it simply make more sense to eliminate capital gains taxes entirely and just tax all income equally?
The two issues are separable. A comprehensive definition of personal income – no special preferences – is desirable.
Although it’s justified as a tax on income, the capital gains is actually a tax on assets. The major problem with it is that the tax is levied on nominal gains rather than real gains, and you do not build up a credit with the tax collectors for real losses.
Where are they going to get this cash to pay the tax? Sell massive amounts of stock?
Which will, of course, affect asset values. The whole idea sounds like an accounting nightmare.
And will Uncle Sam send me a refund of some sort when I experience an unrealized capital loss the year after he hits me with an unrealized capital gains tax?
https://alchetron.com/cdn/pugsley-addams-c3bce0b2-5a1d-4fc0-9965-651ccac23d3-resize-750.jpg
After unrealized capital gains comes imputed income.
You own a house instead of renting one? The government is losing out on the opportunity to tax the rent you would have paid your landlord.
You cut your own grass instead of hiring lawn service? The government is losing out on the opportunity to tax what you would have paid to have your lawn mowed.
You raise your children at home instead of working and paying for day care? The government is losing out on the opportunity to tax what you would have paid to have your children watched, and on the income you could have made had you worked….
Very good catch, Fredrick.
Beat me to the punch.
The Demonicrats have been periodically floating such proposals for years.
And why stop there? Have good health? A better class of friends? Good looks, or other “unearned advantages” ? Do you drink out of a well, or a rain barrel? Grow vegetables in a garden? Have a Spartan physical constitution and a disciplined will that saves on self-consoling creature comforts?
Tax it!!
These vampires seem to never miss as opportunity to exploit, whether real, or imagined.
Normal people marvel at the investment of energy and attention it seems to demand of the prog-vampires, to even come up with these ideas.
Normal people ask: How can they manage it? Don’t they have families to raise, jobs to work, gardens to tend?
The answer of course is that we are their crop, so far as the progressive organism is concerned. All other occupations and priorities trail when it comes to their interest in ensuring that they carve out a piece of you for themselves.
You, belong to them, you see, because some bitch whelped them within striking distance of your family, and they survived to adulthood. Now, you will pay.
That is all the justification they need.
They are as has been boastfully said by one of their allied kind, proudly “beyond freedom and dignity”.
Their will to power, or better – tracking C S Lewis’ characterization – the will ” to consume, devour, and drain the other”, knows no limits, recognizes no boundaries, and no point of satiety.
Their moral lives and minds are a psychological preview of Hell, minus only the flames.
Democrats … effen cannibals.
In the stock situation this would lead to all kinds of strange market behavior. Will Bezos(or whoever) just sell Amazon stock to pay this tax or will he sell other stock in other companies he may have but is not directly tied to that way he could partially shield the Amazon share price. And what about all the other people affected by this what will they do. Plus they could be saving on next year’s ‘tax’ by depressing stock value this year.
What a ridiculous plan.
OK, they want to squeeze as much out of the stone as they can.
But doesn’t this have to pass muster with the Constitution? With the Supreme Court?
I’m thinking of the famous dictum/judgment meted out by Justice Learned Hand regarding the absolute justification for any citizen to try to pay as little tax as is legally possible.
Wouldn’t such a judgment have any bearing for a situation where the government is hell-bent on taxing its citizens into the ground, most speciously by making post-hoc changes to established tax law.
(My assumptions, OTOH, may be total non-sequiturs…)
Frederick, DNW,
A very wise young man wrote a very prescient song about this 55 years ago.
https://www.youtube.com/watch?v=l0zaebtU-CA
What did the Supreme Court do about FDR’s WWII tax plan?
Asking because I don’t recall any relief coming from that branch of the government.
Would not be in the slightest surprised to see Biden, trying to analogize the situations.
Given the insatiability of the ‘needs’ of the nanny state, when milking ‘billionaires’ and millionaires proves insufficient… how long before they go after the “unrealized capital gains” of 401k and pension funds?
Rhetorical question; what shall they do after they’ve strangled to death the golden goose that is capitalism?
America’s fundamental transformation into Venezuela. The hard core leftists lust for it. The liberals too indoctrinated to realize they’re enabling that fate for themselves.
Griffin,
The Beatles’ “Taxman” is certainly apropos however none of them could ever lay claim to being “very wise”, though I’ll grant you the song’s being prescient.
Great commentary from Neo on down. The thing that scared me a bit this morning was the TV commentator who said that Manchin was looking at this favorably.
M J R poses a crucial question. Do I get money back from the feds. when my paper wealth goes down? Ha ha.
Neo touches on the exemptions question. Some real estate will be off limits. What about union investment accounts? There’s trillions in those. Congress person’s investment accounts? Exempted, exempted.
_____
Amendment XVI (1913)
The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.
So congress will just redefine the word income to suit its purposes? Or the Supreme Court will protect us and the Constitution because Chief Justice John Roberts will come to his senses this time. An Obamacare penalty fee can be interpreted as an income tax, but an unrealized capital gains tax cannot?
The enormity of the Roberts (Sebelius?) decision for me was not so much that he let Obamacare stand, as it was that he butchered the definition of an income tax.
This is precisely why “Biden” claims the “Build Back Better” multi-trillion dollar boondoggle will NOT—NOSSIR—cost the citizens a penny.
(It’ll just be skimmed, rather deeply at that, from their income—and what SHOULD BE their prospective income!!)
Think about how dishonest and deceitful—how wicked—a person has to be to conceive of such a policy….
The rationalizations are stunning, if par for the course.
(And no, none of it is a surprise considering the corrupt and criminal nature of the current regime.)
Wyden’s proposal is particularly obscene.
But taxing unrealized cap. gains, or total wealth as in Wyden’s scenario, in an era of government-induced inflation of asset values by cheapening the money supply, is totally outrageous and surely cannot pass SCOTUS muster, since one cannot in a sane world be taxed on profits not realized, not taken. Passing the idea of taxing unrealized long-term capital gains will surely ruin the country. That it will hurt Zuck and Bezos more is irrelevant.
Trouble is, to move monetary assets out of the US incurs a huge IRS tax penalty all by itself—40%!
Geoffrey,
Well not sure I agree with you on how wise the Beatles were as a whole but ‘Taxman’ is pretty damn good social commentary by a 23-24 year old George Harrison. There are other examples also but that’s for another time.
I don’t care about Bezos, Zuckerberg or whoever but this plan will cause massive market volatility and I do care about that.
Geoffrey Britain —
Rhetorical question; what shall they do after they’ve strangled to death the golden goose that is capitalism?
Decorate lampposts, if there is any justice in this world.
You know what a wealth tax looks like in practice? A line on your 401(k) statement that says “Equity Surcharge.” But don’t worry, it’s just a small nip on your balance; or your withdrawals; or both. Maybe 3-5%. And next year 7-8%. And then sliding upward, ever so gently, to 10% and 15%.
But it’s totally fine. They have serious scholars working on the report that shows this is not unconstitutional, not a bit. And since everybody else is getting utterly raped as well, who are you to complain, comrade? Why, that would be disloyal!
Next to the Green New Deal and CRT, this is the craziest Dem idea of all time.
My Omaha neighbors Warren and Susie Buffett can’t be happy.
I just saw a video quote from Pelosi that she estimates that this unrealized cap. gains tax will raise about 10 or 15% of the needed revenue for their proposed spending blowout. Great. An unprecedented subverting of the Constitution that amounts to a few cups thrown into the money bucket.
Surprised that a “transaction tax” on each and every financial transaction isn’t in the bill. Or is it?
Cornhead,
That’s the point I forgot. Warren is probably unconcerned. The vast majority of his billions are wrapped up in a tax free charitable trust. Does he want to fly around the world in a private jet and dine in the finest restaurants? Just charge that to the trust’s expense account.
Warren is probably unconcerned.
His life expectancy is less than five years. What he should be concerned about is to prepare to die a good death and in so doing enjoy each day and the people in it.
One of the ways for government to artificially raise “unrealized capital gains” would be through real estate.
County and city assessors could raise their assessment valuation on your property. This valuation would then be used as the basis for the “unrealized gain” tax you owe. Since the government would control this, they could increase their revenue without increasing the tax rate, only their assessment.
As several commenters above have noted UNrealized gains are gains that have yet to become profit, just as imputed income has yet to actually become real income. Being taxed for income you have yet to actually possess is a fiscal version of Minority Report, i.e., being arrested for a crime you have yet to commit.
Furthermore, since the government has demonstrated its willingness to simply print money when it needs it (“quantitative easing”), why should the government even worry about collecting taxes anymore at all? Just add some zeros to the federal balance sheet and keep on spending. It won’t change where we are fiscally headed, it will just make the day of fiscal judgement approach a little faster.
Thinking about this I remembered a December from a few years back where the stock market had a nasty correction capped by the Christmas Eve half day. It was December 2018 and market dropped 9-10% that month alone. That one month wiped out an awful lot of ‘unrealized capital gains’. This would become a regular thing if this plan were put in effect and I still can’t see how they tax gains but just whistle past years with losses.
Art Deco,
His children and grandchildren are using that expense account too. I know for a fact that his children were installed as managers of the trust and Warren joked that they lobbied him to increase the private jet budget many years ago. He claimed to have nixed the budget increase.
But I did say “he” as in Warren.
Plus how is some piece of art valued from year to year?
This entire thing is insanely unworkable.
And as eeyore pointed out there is a lot of incentive for County Assessors to totally rig property values to capture more of that ‘unrealized gain’.
Combine taxes on unrealized gains with high inflation and you have a legal vehicle to steal everything a person owns.
Anyone who works in the tax industry knows not only the impracticality of this proposal but its unmitigated arrogance as well. The Democrats’ insatiable need for money has created an extraordinary degree of creativity on their part. The concept of taxing unrealized gains turns the norms of our 100 year old system on its head because of the desperation of a political movement to squeeze, grab and steal money in any way they can, even if they have to create a fiction to do so. This is little different from putting a gun to someone and robbing them.
Mark to market is an accepted way to tax the trades in the futures market for US tax residents. It started because some people would create a long and a short position in the silver market which at that time was a very volatile and thus guaranteed to move substantially. At the end of the year you would close the losing position and take the loss and write it off. Mark to market eliminated this.
Don’t worry folks… If you’re low seven figures, that champion of the Little Man, Warren Buffet via Berkshire Hathaway or another of his vehicles, will gladly sell you a tailor-made product to mitigate the effects of this new legislation he’ll be having lots of input into the drafting thereof.
“Once the camel gets its nose in the tent, it will ultimately get the whole body in, and then some.”
Yes indeed. ‘And them some’ meaning a whole caravan of camels.
This is a plain fact many well meaning liberals (nor leftists, who have very different t motivations) simply cannot or will not understand. What’s wrong with making the very, very rich ‘pay their fair share’? they smugly ask?
1. It never ever stops with the ‘very, very rich’.
2. ‘Rich’ and ‘Very rich’ are squishy terms, rarely publicly clarified. Often they will be stated in terms of percentiles. But what exactly is the top 1% in terms of income and assets? The top 10%? Democrats and the MSM will hastily change the subject.
3. That tiny coterie of ‘very, very rich’ has the resources to either evade the tax or, if that’s too burdensome, just pay it. Doing so affects them little, if at all. But see, #1. It’s primarily not about them.
As Thomas Sowell wrote about John D. Rockefeller in “The Inequality Bogeyman”:
And, of course, the same can be said of Gates, Bezos, and Musk today.
As Instapundit likes to say, read the whole thing:
https://www.realclearpolitics.com/articles/2014/01/28/the_inequality_bogeyman_121379.html#ixzz2rhfZ9U98
When Bezos disintermediates some of you commentators’ grandchildren, see how you feel then.
Perhaps they can learn to code and build their own Amazons 🙂
A couple of commenters here who have written that the unrealized capital gains tax will not pass muster in the U.S. Supreme Court, seem to be failing to take into account that the Supreme Court will be stacked or otherwise sufficiently compromised when the measure is adjudicated.
clinton tried this also. He called it IMPUTED income.
seem to be failing to take into account that the Supreme Court will be stacked or otherwise sufficiently compromised when the measure is adjudicated.
The Supreme Court is populated with people who have unrealized capital gains and move in a social matrix chock-a-block with people who have unrealized capital gains.
The courts are biased and often worse than useless. However, the left is frequently enraged by the unwillingness of the courts to act as a mouthpiece for the law professoriate and the public interest bar. See, for example, 2d Amendment rights. I would not lay any money on the proposition the courts will lie down for this.
Just the latest scheme to collect tax revenue to fund new programs. Recall the proposals to somehow tax automobile owners for miles traveled, in addition to the tax on gasoline sales, because the new hybrid and electric vehicles use less or no gasoline.
As Ronald Reagan said, “We don’t have a trillion-dollar debt because we haven’t taxed enough; we have a trillion-dollar debt because we spend too much.”.
clinton tried this also. He called it IMPUTED income.
When?
His children and grandchildren are using that expense account too.
Prosecute them for embezzlement.
Foundations should be the sole philanthropic type with a franchise to make grants to incorporated bodies. At the same time, foundations should be evanescent, forced to liquidate within 60 years of their incorporation. The Buffet Foundation was incorporated in 1964. In a sensible world, a surrogate’s court would shut it down in the next three years.
This and other Dem proposals would be very harmful to the funding of startup ventures and early-stage companies. The nature of investing in such companies is that you get a lot of failures and an occasional home run. If unrealized games were taxed, it could make it difficult to hold such homerun investments for a number of years…particularly when the unrealized-gain taxing is combined with the proposed capital gains tax increase for people with higher incomes (in a particular year) and the effects of inflation.
Taxing unrealized gains requires *valuation* of the investments….hiring valuation firms to assess companies whose entire current value may be only $5 or $20 million would be economically very questionable. It’s already hard enough to start a startup, get initial funding, and make it work…this proposal would considerably increase the difficulties.
The Dem tax proposals have also called for drastically cutting the benefit of the Qualified Small Business Stock tax incentive. (which requires holding the stock for 5 years)
And there are also proposals to restrict the investment options of Self-Directed IRAs…see this article:
https://www.entrepreneur.com/article/390076
In the Democrat worldview, all of these harms to the investment process are actually *benefits*, since innovation investments would increasingly be those directed by the government and steered toward politically-favored industries, technologies, and groups.
As Ronald Reagan said, “We don’t have a trillion-dollar debt because we haven’t taxed enough; we have a trillion-dollar debt because we spend too much.”.
No, we have a trillion dollar debt because our ‘leaders’ don’t match revenues to expenditures, something they did as a matter of course prior to 1961.
1. No doubt Pelosi has told the committees in question that there better be carve-outs which protect her husband’s business.
2. Notice the employment history of Ron Wyden. He’s been in Congress since he was 31 years old. For a half-dozen years previous, he was the staff director of a string of NGOs, advocacy groups mostly. By some accounts, he was also a higher ed patronage recipient, engaged to teach courses even though he lacked a research degree. He earned a law degree, but apparently never practiced (much less practiced tax law).
Fun fact about Wyden: officialdom in Oregon permit him to run for office there even though his homes are in Washington and New York.
In the Democrat worldview, all of these harms to the investment process are actually *benefits*, since innovation investments would increasingly be those directed by the government and steered toward politically-favored industries, technologies, and groups.
Yeah, and each is listening to some mope on their staff who read a paper by Joseph Stiglitz assuring them that it’s all good.
One of the ways for government to artificially raise “unrealized capital gains” would be through real estate.
Good point. About 65% of the population lives in owner-occupied housing and the current value of real estate exceeds that of publicly-traded equities.