1y ago

Temporarily embarrassed millionaires pt. 2

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An income tax would be pointless for the wealthy. Most of their wealth is in unrealized capital gains or other investment vehicles, not from salaries.
There would need to be a mechanism to tax unrealized capital gains, or just networth in general.
- tax unrealized capital gains
  This actually happened with bitcoin a while back due to its under-regulated nature. A few people lost their pants when the value of bitcoin skyrocketed on one day in december and then plummetted in early January, and the IRS came knocking for those unrealized gains.
  Largely, We don't tax unrealized gains because unrealized gains is value that hypothetically can disappear as quickly as it shows up. It's like taxing someone after every hand of blackjack - you can end up broke AND owing 10x your starting money in capital gains taxes. In theory, a stock portfolio can go from way-up to way-down in 24 hours. Ditto with real-estate if there manifests an uncovered loss event or the title gets fucked, or environmental regulation changes in a way that affects the property, etc.
  ...I'm not saying there's not a way to do it right. It just needs to be done very VERY carefully so as not to bankrupt people. It would likely have to be more complicated than most tax law is now.
- They still make liquid money no? Well above what any normal person takes home.
- Yes because there's no chance that this would end up having to be paid by every homeowner whose house has gone up in value since they bought it while rich people would just find another loophole to avoid it, while the government would piss all that extra money away on wasteful spending without addressing any actual problems.
  
  Heh, this post is about you.
  
  They're not wrong. The people who would write these laws are paid for by the people who would be negatively impacted by them, so I guarantee they'd be full of loopholes.
  
  I hope you love your landlord, because with that attitude, you'll never own a home.
  
  It's income, not assets. Anyone who's house increases value from 9 million to 10 million wouldn't have to pay it.
  
  Unrealized gain is by definition not income, that's what "unrealized" means.
  Let's say you buy a house for $300k and the value goes up to $400k. But you don't sell it because you want to keep living there. Too bad, now you have an unrealized gain of $100k and you owe taxes on that. At the current rate, if your regular income is between $47k and $518k, this would cost you 15 grand. Not to mention you'd have to pay this tax every year that your house appraises for more than you bought it for.
  Still sound like a good idea?
  
  Yeah, you don't magically have to pay income tax on unrealized gains. You pay income tax on income. That's why it's called income tax.
  Too bad, now you have an unrealized gain of $100k and you owe taxes on that.
  You owe property taxes on it, if it's an asset property, and your location has property taxes. If it's stocks and bonds, you wouldn't have the same problem.
  
  Yeah, you don't magically have to pay income tax on unrealized gains. You pay income tax on income. That's why it's called income tax.
  This was a hypothetical, because thread OP was suggesting a tax on unrealized gains. I was just trying to explain the possible consequences of such a tax.
  In order to tax unrealized gains, they WOULD have to be treated as income, even though they really aren't, because if you didn't sell an asset, you didn't make any money. Unless you rented it out, of course, but rental income is already treated as such.
  As far as stock or bonds go, it's the same. Imagine you buy some stock to hold for the long term. Well, if it goes up, and there's a tax on unrealized gains, you'd be owing taxes on every dollar it has gone up from the purchase price, EVERY YEAR that you hold it. It would almost be like having to pay rent on something you already own, and of course that would make long term investing extremely unattractive, not to mention it would basically eliminate any chance that normal people have at building any wealth whatsoever.
  Also, if long term investing becomes unattractive, that means people would likely just try to sell everything the same year they bought it, meaning there'll be a lot more short term trading (and thus rampant speculation) going on. Even if you put generous exemptions in place to avoid penalizing the lower and middle classes with this, taxing unrealized gains would lead the super rich to engage in more short term speculation, which means the markets would become much more unstable. It's literally the dumbest idea anyone could think of unless their goal is to just cause as much pain and chaos as possible.
  
  I think you lost the thread. The grandparent post here said "There would need to be a mechanism to tax unrealized capital gains"
  We're talking about someone thinking we ought to be taxing things that aren't income. What is currently true is not relevant to that discussion.
  
  Sorry, I didn't realize the comment changed direction from the OP meme.
  
  No worries :)
  
  Yes because there’s no chance that this would end up having to be paid by every homeowner whose house has gone up in value since they bought it
  A chance? Sure. But it would require willful malicious writing of the bill. Many (most?) states have homestead protections for homeowners up to a certain conservative value. That protection could pivot to capital gains trivially. I think it's perfectly reasonable to tax valuation skyrockets in excess of (say) $500,000. The government can depreciate those value skyrockets, and we'd still honestly be paying less than our due since property value skyrockets cause property tax decreases (in most (all) municipalities, property taxes are just the town's expenses divided by property value).
  while rich people would just find another loophole to avoid it,
  In real state, that "loophole" is a law that exists in most states specifically saying you don't have to pay tax on property gain if you follow a specified process to reinvest into property in the same calendar year. But it's not a loophole if it's the damn law. The only way people are dodging real estate taxes now is because they wrote laws to. A law that says "fuck off, you still have to pay" would absolutely work.
  while the government would piss all that extra money away on wasteful spending without addressing any actual problems
  Across the world, tax rates are largely proportional to health, happiness, and quality of life of the citizens. I prefer to trust the numbers over someone's distrust of the country they live in.

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