Even if it is unconstitutional, there are ways around it. They can declare all equities to pay a dividend at the end of the year equal to the closing value which will then be reinvested to buy the share back. A taxable event in the current year. No different than how dividend and cap gain reinvestments work now.
RonJ
2 years ago
“Are Unrealized Gains Income?”
A bird in the hand is worth two in the bush. Question is, can one catch the two in the bush or realize their loss?
RonJ
2 years ago
“The Big Concern”
Klaus Schwab: you will own nothing and be happy. What does a Great Reset look like? There have been several in history.
Who confiscates what from whom, this time?
Eddie_T
2 years ago
OT….I don’t have much faith in Congressional inquiries, but this Rolling Stone article about the Jan 6 Capitol riot is pretty interesting with regards to the planning and incitement phase. I wonder if anything will come of it. It sounds like the facts are pretty ugly, and that there is plenty of blame to go around.
Huge numbers clicked “retweet” on this Rolling Stone article, despite the fact that it presented literally *no* evidence in support of its core claim, because it promoted their interests.
Michael Tracey
@mtracey
This Rolling Stone article that’s supposed to contain bombshell new Jan 6 info is a complete dud. It’s been public info since well before Jan 6 that dopey GOP members of Congress met with dopey “Stop the Steal” organizers like Ali Akbar. This is just repackaged to seem shocking
xbizo
2 years ago
So Mish, what about county property taxes? They are made on appraised value. Constitutional? Why don’t Dems simply piggyback on that infrastructure with a 1% annual property tax?
Federal property tax. Interesting idea. Could make it on properties valued at $10m or more. If those are bank owned then the bank must pay it.
Casual_Observer2020
2 years ago
Corporate AMT is the way to go. This would prevent large companies from escaping taxes completely. Other countries have this but dont allow writeoffs and deductions the way the US does. The tax code could be modified in so many ways. Our law makers are not imaginative.
oee
2 years ago
It is constitutional. The Constitution gives the power to Congress to levy taxes. Therefore, the Congress can levy taxes .
Income tax
The reason for the amendment to the constitution was that the people whos income was taxed argued that income tax levies were not part of the original constitution therefrom they were not constitutional. Therefore, the income tax amdenment was passed.
This is similar to inhertance taxes. Although not income, the Congress can tax those.
WarpartySerf
2 years ago
“Is taxing unrealized gains constitutional?”
Gee – with the Constitution already in complete tatters, why would the rich fear anything connected with that ?
That kind of talk is just another conspiracy of the “little people”.
StukiMoi
2 years ago
“Is Taxing Unrealized Gains Constitutional”
That depends solely on whether those in power, arbitrarily feels it benefits them or not. After all, they can deem and find and hold any darned thing they feel like, entirely without any constraint at all. Their captive dupes will just bombastically blurt out “It’s The Law!” either way.
purple squish
2 years ago
Agree. Every one of the people pushing this crap knows its not allowed under the document that they swore to uphold, but that’s never stopped anyone for the last 80 years. Maybe some rich guy wants to try his luck and get hit by the IRS so that he can fight this in court, and can maybe overturn this in 10 years before it has time to become my problem too, but I’m not going to hold my breath. Judges makes crappy decisions all the time.
This is why I propose the 28th amendment: “Any time a law is deemed unconstitutional, 10% of the representatives and Senators who voted for its passage, rounded up, will be chosen at random and immediately expelled from congress.” It’s time to make a consequence for going out of bounds. Vote purple squish.
cowznofski
2 years ago
Unrealized gains and losses on section 1256 contracts (regulated futures contracts and other specified contracts) are subject to tax under current law and have been so taxed since 1982. In addition, dealers in securities and eligible taxpayers who elect to be taxed as traders under section 475 are required to treat their unrealized trading gains and losses as taxable at the end of the year.
Eddie_T
2 years ago
Has anybody noticed how civilized the conversations are on the forum today? My hat is off to the management.
I haven’t blocked anyone and yet the trolls seem to have disappeared. Clearly Mish or someone who has moderator power has banned some accounts.
RJM Consulting
2 years ago
Standing a bit further back from the trees, the real question is whether accumulated wealth should be a source of government revenue. When it is possible to obtain a loan from a creditor using a stock portfolio as collateral, or on the corporate side, to issue debt that is collateralized by and subject to maintaining a level of corporate assets, the appreciation is considered ‘realizable value’ (for the creditor). Considering that appreciation as source of government revenue – or rather, the basis for requiring the payment of a tithe, if you will, is not so far fetched. I come down (obviously) on the side of CPA Mariano: where the government needs to increase its return on public investment (the roads, the airlines, the subsidized energy and agriculture industries etc etc etc) all of which have contributed to the possibility of the corporation’s attaining profits, the Congress can define the “rose” by any name it so chooses.
Here you are supporting a wholly different style of government than the Founders ever intended.
The point of the country was to be independent of government, not subject to it. The roads and other public investment are owned by the people, not the “government.” We have the right to enjoy our own gains as a result of our tax payments, not be subject to even more payments because the “government” believes that we have benefited too much from “their” investments.
I hope you were just musing out loud, because if not, then it is no wonder that this country is headed entirely in the wrong direction.
Another example of “I like all the conveniences of modern life, but when it suits me, I raise the flag of “original intentions of the founders”. Its not worth debating. 1789 is not a world that any of us would actually want to live in. (I hear the cellphone coverage was terrible!)
Very intelligent response. You must be a Millennial, no?
I suppose you also believe that the Magna Carta, The Enlightenment, all historical documents are irrelevant, because, why, cell phone coverage! I mean, all of these concepts are outdated!
The Constitution was based on men who understood the tyranny of government and men over millennia. They understood human nature. It has not changed, and it will NOT change, as much as you and your activist friends think you know everything there is yet to know.
It’s not a technical document with “rules” that apply to an era — it applies to a tremendous wisdom in knowing how human beings will behave when left with too much power, or devices that give them more power.
You need to read more about history and literature. All of the themes of men and power are there, and that is the purpose of understanding it.
A taxable transaction occurs when the borrower sells stock to pay off the margin loan. A margin loan is no more a taxable transaction than a home equity loan. Under your theory, every homeowner in the country could be subject to tax on the unrealized increase in the value of his dwelling if Congress so decided. People obtain cash via loans all the time. In large loans, say for business purposes, borrowers are often required to pledge their homes and other assets as collateral. Is the loan therefore a taxable transaction due to the collateral pledge? Common sense, which apparently isn’t very common nowadays, says no.
See Cowznofski’s comment above. It already happens. (Full disclosure: I am a trader who is taxed on end of year marked to market gains and losses, which may explain why I see no problem with the proposal.)
Scooot
2 years ago
Would you be able to offset unrealised losses?
Say I had a portfolio of ten stocks, 5 up, 5 down, with no overall gain. Another had a holding in a fund with the same stock positions. If you couldn’t offset the unrealised losses, the holder of the fund would pay no tax, whereas the holder of the individual stocks would pay tax on a portfolio with no gains.
As a matter of course you would absolutely have to offset.
Imagine having a $10MM portfolio, and $5MM gets wiped out. The other $5MM doubles. You would now have to pay 40% of your gains, or $2MM to the feds (assuming state doesn’t copy), leaving you with $8MM again.
Not so fast! You can offset your unrealized gains by the realized losses, just as you are now able to offset realized gains by all your previous realized losses.
Only up to a point. The amount of losses you can carry over is capped. So if you lose 2 million one year, and make 2 million the next it’s not a net zero tax wise because the 2 million loss is capped to a quite small number.
Where is the rule on that? The only cap is on *net* capital loss and that is limited to $3000. So if you lose $2 million one year and make $2.005 million the next, the limit is at $2.003 million. You have to carry over $2000 to the following year.
You can only use $3K worth of carry forward losses each year.
So in the example of lose 2 million one year, make 2 million the next you can only offset 3K worth in the next year. It will take ~666 years to use all 2 million in carry forward losses.
CRS65
2 years ago
Although I am not in favor of taxing the value of unrealized at risk investments, I do believe that there is likely a constitutional way to do this. Defining unrealized gains as income would not likely work. However, taxing the increase above a previous high water mark the value of appreciated financial asset value as a type of excise or property tax would likely get around the whole redefining income issue that would be problematic.
It will be interesting to see how this all plays out. In my opinion they are making this harder than it needs to be. Simply close some big give aways currently in the tax code for the wealthy, set a flat tax on ALL income (realized cap gains, tax free muni bond income, carried interest, etc.) above $1.0 single filer and $2.5 million joint filers, and raise the corporate income tax rate to 26% with a 15% minimum corporate tax rate. Add to this a 5 cent financial transaction fee and I bet that this would generate enough additional revenue to pay for a 10 year $2 trillion human infrastructure plan.
PreCambrian
2 years ago
I think that a lot of people are undertaxed but taxing unrealized capital gains doesn’t make much sense. I would be in much more in favor of a 50% inheritance tax on all assets over “X” amount. Will the billionaires get tax refunds if the value of their assets drop?
Did homeowners get property tax refunds from prior years when the value of their homes dropped? No. If they could live with that, then I am sure the billionaires can manage!
Frankly, all the worrying about whether those “poor” billionaires would be able to survive this tax “onslaught”, would have been laughable were it not so pathetic.
I think everyone with any common sense realizes it won’t stop with Billionaires and will soon reach those with 100 million and then 10 million and then 1 million and so on.
There just isn’t enough money to be had by only taxing billionaires. 200 billion over 10 years is a lot of money but isn’t even 1/10 of what they want for new spending (never mind current spending that already isn’t 100% covered by taxes)
Watch out for the Republicans (and their corporate DONORcrat buddies) to try to do that. They don’t want their super-rich lords inconvenienced and so they would transfer the burden to the middle-class and the poor. Look at their patron saint Reagan – cut taxes for the super-rich and transferred the burden to the middle-class and the poor, with 18 tax hikes on them.
Eddie_T
2 years ago
It’s often just semantics, right? Every time the Republicans give a “middle-class tax cut”, for instance my taxes still go up, while corporate taxes always go down.
The Democrats should call this a tax cut, and explain that they’re just giving billionaires a chance to cut their inheritance taxes by “pre-paying” capital gains while they’re still alive.
Just about everyone in the “middle class” that I know owns a 401k, or some kind of retirement fund. Or, they trade and hold stocks beyond just retirement.
So if corporate taxes go down, they benefit, don’t they?
And when Republicans give tax cuts, they favor small businesses. This is what happened in the 2017 package. Most small businesses are owned by middle class people.
The reason your taxes went up is very likely due to the SALT cap. Most of the rest of the package was lowering and reducing tax burdens overall.
I was joking, fwiw. I don’t support taxing assets. For anybody.
Btw, I own a small business, I make a payroll, and I can definitely say that my taxes went up under the T man. My taxes have also generally gone up over the 35 years I’ve been self-employed, under Republican and Democrat administrations. The idea that Republican tax cuts favor small business is simply wrong. They always, always, always favor corporations.
I consider that interesting. My taxes went up, too. But it was almost all as a result of the SALT cap. What reasons did yours go up? Did you look at the comparatives in the return to see what specifically changed?
The Dems should definitely reinstate the SALT deductions to claim a tax cut for middle-class!
They should also propose a ROTH type tax on capital that one can pay and then escape taxation on increase in capital at time of inheritance. Dems are truly horrible at presentation of their policies.
Federal property tax. Interesting idea. Could make it on properties valued at $10m or more. If those are bank owned then the bank must pay it.
Frankly, all the worrying about whether those “poor” billionaires would be able to survive this tax “onslaught”, would have been laughable were it not so pathetic.