You ready to pay Kama-Kama-Chameleon's 25% tax on the ultra-wealthy's unrealized capital gains?

[hadit]

Yup, and that's ^^^^^ great.

You are the kind of person that won't play the Lottery because "If I win $100 Million, I will have to pay TAX on my winnings." "And that is totally unfair"

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And if you actually believe that's where it will stop, I have a rainbow farting unicorn in my backyard I'll sell you, cheap. This is how all new taxes work.

First, they're sold as "only applying to the rich" to give the average taxpayer a false sense of security. "Yeah, that'll teach 'em a lesson. Get those evil rich guys".
Second, the evil rich guys, not being idiots and employing tax attorneys to keep their tax bill to a minimum, take steps to avoid the new tax. In this case, they'll probably go ahead and sell off their stocks as soon as they can, crashing the markets. And why would they care as long as they sold before the panic started? Then they would take the cash and invest or stash it somewhere they won't have to pay the new tax.
Third, Congress, like the hungry dogs they are, meets the anticipated new revenue with spending that immediately exceeds it.
Fourth, the tax hikers realize that they're not going to get anywhere near the revenue they thought they were going to get, so they do the inevitable. redefine wealthy. All of a sudden, instead of $100 million, now it's $50 million, then $10 million, then the entire middle class will see their life savings evaporate as they have to sell the assets that they purchased years ago for retirement just to satisfy the rapacious federal government's wealth grab. Eventually, everyone who purchase any asset that appreciates in value will pay the tax.

As long as the congresscritters can convince the gullible that THEY won't be hit and it's only going to affect the OTHER guy, they'll keep pushing the limit lower and lower, and by the time they have to ease off, the idea is permanently set that you don't really own anything, that you only have what you have because government allows you to have it and you have to pay for the privilege. Note that the pushback won't be that the tax is wrong or killing the economy, it will only be that the limit is too low. The precedent will be set and it will never go away.

 

[Skylar]

So if your million dollar 401K goes up 10% (+$100K) you have to pay additional 25%($25K) tax when you file 1040?

If your net worth is over 100M a year, you're not filing a 1040.

So your million dollar 401K wouldn't pay a penny.

 

[hadit]

I'm still chewing on it. I'd need to know more. Like...how are losses counted?

If you bought shares at $10 a share, but then they went down to $8.00 a share, there are obviously no gains, realized or otherwise. So if the value the next year returns to $10 a share, do you have to pay fifty cents on 'unrealized gains', despite the fact that you haven't actually made money?

If no, then the original purchase price impacts your tax liability way past that first year. Which has its own implications.

What about options? Does having the option to purchase shares at a certain price represent unrealized gains, even if you've never exercised them? I'd say, maybe......as depending on the circumstance, you can take out loans on un-exercised options.

And what if you purchase options. Are those subject to unrealized capital gains taxes if you never exercise them, even if they're in the money?

The only way I could even be interested in this idea is if I would get a tax REFUND for unrealized losses. It would only be fair, if I have to pay taxes on unrealized gains.

 

[hadit]

If your net worth is over 100M a year, you're not filing a 1040.

So your million dollar 401K wouldn't pay a penny.

Only until the inevitable resetting of the limit kicks in.

 

[Skylar]

And if you actually believe that's where it will stop, I have a rainbow farting unicorn in my backyard I'll sell you, cheap. This is how all new taxes work.

First, they're sold as "only applying to the rich" to give the average taxpayer a false sense of security. "Yeah, that'll teach 'em a lesson. Get those evil rich guys".

There's precedent both ways. But you're not wrong that there have been tax schemes in the past that were sold on only apply to the ultra wealthy that were then spread to everyone else.

The Income Tax, for example.

But there are also precedent the other way. The AMT for example.

 

[Marener]

Only until the inevitable resetting of the limit kicks in.

If we are allowed to make things up, we can find a reason to oppose any plan.

 

[M14 Shooter]

The only way I could even be interested in this idea is if I would get a tax REFUND for unrealized losses. It would only be fair, if I have to pay taxes on unrealized gains.

The question of course, is how they calculate unrealized gains.
Bought at $100. Fell to $25 Jumped to $200. Settled back down to $60.
$100 gain? $175 gain? $35 gain?

 

[Skylar]

I wonder if I will have to pay cap gains on the increase in the value of my firearms, after she bans ' assault weapons'.

Capital assets are generally regarded as stocks or bonds. So unless those stocks are gunstocks, you should be okay.

 

[Skylar]

The question of course, is how they calculate unrealized gains.
Bought at $100. Fell to $25 Jumped to $200. Settled back down to $60. $150 gain? $175 gain? $10 gain?

That's a significant question. How does it handle losses. And I genuinely don't know.

Also, does it count on unexercised, but in-the-money stock options?

 

[Skylar]

I'm still chewing on it. I'd need to know more. Like...how are losses counted?

If Musk's shares drop $40 billion in year 2, he gets a $10 billion refund.

Dunno. How losses are calculated hasn't been defined in proposal yet.

If I had to guess, I'd say there would be no refunds. But instead, credits against future tax liability. Similar to how real estate in NY works, where a shit year for Trump means he basically didn't pay taxes for half a decade.

 

[hadit]

If we are allowed to make things up, we can find a reason to oppose any plan.

It's a fairly safe bet, given the history of how government treats taxes and taxpayers.

 

[hadit]

Dunno. How losses are calculated hasn't been defined in proposal yet.

If I had to guess, I'd say there would be no refunds. But instead, credits against future tax liability. Similar to how real estate in NY works, where a shit year for Trump means he basically didn't pay taxes for half a decade.

To me, that's the only thing that could possibly make something like this remotely palatable. Oh, here's another idea. You pay unrealized gains taxes and when you sell the assets, you deduct the taxes you've already paid from the tax bill you would ordinarily pay. If they are greater than the tax, you get a refund. That could work, because the government essentially gets its tax bite early instead of having to wait 40 years for you to retire and when you do sell, you don't get a big penalty. In fact, you might get money back. That would be cool. Basically, like a Roth IRA, you pay the tax up front.

 

[Skylar]

It's a fairly safe bet, given the history of how government treats taxes and taxpayers.

Its gone both ways. In this political environment, its highly unlikely to go the way of the income tax.

When income taxes were spread from the super wealthy to everyone else, it was a very different situation. The income tax has been pushed very hard by the temperance movement. The US government revenue was based largely on taxes on alcohol at that point and a replacement for that income stream was needed.

The temperance movement realizing this pushed for the income tax. And then for prohibition. The temperance movement was able to deliver broad support for the expansion of the income tax as a moral duty to eliminate the evils of alcohol.

We have an effective income stream now. This would be an enhancement to it. The same need to spread the tax liability doesn't exist. Nor is there to political will to tax the 401k of the middle class. Nor any temperance movement to push the moral duty of higher taxes.

They might drop it down to the double digit millionaires. But its unlikely they'd go lower.

 

[Marener]

It's a fairly safe bet, given the history of how government treats taxes and taxpayers.

Your perception of what is and isn’t a “safe bet” is highly skewed by your personal politics. Heard it all before.

 

[Skylar]

Your perception of what is and isn’t a “safe bet” is highly skewed by your personal politics. Heard it all before.

In fairness to hadit, he's not wrong that there is historical precedent for a tax being initially sold as only applying to high earners and then being spread to everyone else. That's what happened with the income tax.

He is wrong in assuming that such a process is inevitable. As there plenty of examples of tax schemes pitched as applying to the wealthy that stayed with the wealthy.

In most cases, tax proposals pitched as impacting only the wealth stay with the wealthy. But not always.

 

[Marener]

In fairness to hadit, he's not wrong that there is historical precedent for a tax being initially sold as only applying to high earners and then being spread to everyone else. That's what happened with the income tax.

He is wrong in assuming that such a process is inevitable. As there plenty of examples of tax schemes pitched as applying to the wealthy that stayed with the wealthy.

In most cases, tax proposals pitched as impacting only the wealth stay with the wealthy. But not always.

it’s going to be pretty difficult for a tax on unrealized gains to affect poor people.

 

[Skylar]

it’s going to be pretty difficult for a tax on unrealized gains to affect poor people.

True. But with something 7.8 trillion dollars in 401ks, its not inconceivable that a tax on unrealized gains would be applied to them as well.

Its unrealistic, unlikely, and politically unsound. But not inconceivable.

 

[hadit]

Its gone both ways. In this political environment, its highly unlikely to go the way of the income tax.

When income taxes were spread from the super wealthy to everyone else, it was a very different situation. The income tax has been pushed very hard by the temperance movement. The US government revenue was based largely on taxes on alcohol at that point and a replacement for that income stream was needed.

The temperance movement realizing this pushed for the income tax. And then for prohibition. The temperance movement was able to deliver broad support for the expansion of the income tax as a moral duty to eliminate the evils of alcohol.

We have an effective income stream now. This would be an enhancement to it. The same need to spread the tax liability doesn't exist. Nor is there to political will to tax the 401k of the middle class. Nor any temperance movement to push the moral duty of higher taxes.

They might drop it down to the double digit millionaires. But its unlikely they'd go lower.

The problem that I see is it opens the door to a whole new power for the government, and I simply don't trust the government to NOT abuse a new power. Remember 9/11 and how we were railroaded into the Department of Homeland Security? As a result, we've had to adjust to a whole new level of government spying on American citizens. My own children could not understand why I was reluctant to put my private information on the internet. They just couldn't grasp why I would want an expectation of privacy. In this case, it goes beyond just one tax, it goes to a whole new world of taxation that I believe will inevitably and negatively impact the average taxpayer. Unfortunately, Congress is like a bunch of vultures, eyeing private savings as a whole new avenue of untapped taxation. Obama is famous for saying, "I mean, I do think at a certain point you've made enough money.", and if he SAID it, you know a lot more are THINKING it. Give those people any more power to grab what they think is more than what someone should have, and we have a problem.

 

[Marener]

True. But with something 7.8 trillion dollars in 401ks, its not inconceivable that a tax on unrealized gains would be applied to them as well.

Its unrealistic, unlikely, and politically unsound. But not inconceivable.

It’s pretty inconceivable since 401ks don’t have capital gains even when the gains are realized. It’s the entire purpose of the 401k.

 

[Skylar]

The problem that I see is it opens the door to a whole new power for the government, and I simply don't trust the government to NOT abuse a new power.

I follow what you're saying, generally speaking. But there are two issues.

First, this isn't a new power. The taxation authority under the constitution is broad. They can tax on unrealized gains by simply redefining income in the tax code.

Second, we're not speaking generally. But specifically. And in this specific instance, the expansion of the unrealized capital gains below say the double digit millionaires is highly unlikely. There zero political will for it.

But to your point, political environments change. And if the winds of public opinion shifted, the scenario you described could happen. I just don't see that as likely. The counter balancing moral authority of something like the temperance movement no longer exists in this country in those numbers.

And historically, without a counter balance like the temperance movement, expansions of taxation from the wealthy to everyone else are far less likely. They usually happen more subtly.....like a decrease taxation rates in investment class favored income. While labor class income tax rates remain mostly unchanged.

You saw this with the massive drop in capital gains taxes, which overwhelmingly favored the wealthy that derive a disproportionate amount of their income from capital assets. While there was no corresponding drop in taxation on the products of labor.