Folks like to hate on capital gains tax. I think it's perceived as a rich-person deal. But homeowners, do they get taxed each year on the increase in value of their house? Almost the same thing, but not hated on the same way.
> Homeowners get taxed every year on the value of their property. Let's do that to stocks, too.
Property tax is fairly regressive because everyone needs somewhere to live, property tax gets passed on as higher rents and living space generally scales sub-linearly with income. It's probably not something we should be emulating, especially if you're going to try to apply the same rules to small business owners.
There’s a certain amount of independence between municipalities, counties, states, and the federal government.
Except in a minority of cases (e.g. NYC), it is states and the federal government that taxes income and capital gains, and they are already not taxing citizens on the y realized value of their home.
So if one is upset about that, you have to take it up with local elections or introduce a measure with your state to prevent municipalities from levying this specific tax.
Yes the idea of property taxes is NOT to tax based on increase in wealth, just the current amount of wealth. And it serves a good purpose in municipalities who have to make sure infrastructure such as roads power and sewage systems are paid somehow. More expensive houses typically require more of those.
I don't know what point you're trying to make. Are you saying that wealth should be taxed but only at the county/municipal level? Or are you saying wealth can't be taxed because of federalism?
That's a different tax. Which speaks to my original point that the term "capital gains tax" is a thing, and seems to be misunderstood.
Tax on property is a completely different tax which works in a different way, and has a different name. A new tax on possession of robots could completely be a thing, but it just wouldn't be called a "capitol gains" tax.
I think both stocks and homes should be taxed on realized value. If you sell it, that realizes the value, but also if you use it as collateral, that realizes the value. If you just live in it, we could say that it realizes the amount of rent you would have paid, or that it realizes nothing.
No, the exponential runaway of "rich people get paid for being rich in proportion to how rich they are" is the core problem and focusing on the derivative is a magic trick intended primarily to draw attention away from the core problem.
The fact that an earned derivative gets heavily taxed and an unearned derivative gets lightly taxed is so stupendously wacky that the absurdity is obvious, but the integral is the core problem.
If you mean the difference between the top line capital gains vs income tax rates, I generally agree but also understand the math does not.
You could reset realized long term capital gains taxes to match income tomorrow and it would not be a huge material difference in the budget. I am 100% for doing this anyways simply because it’s fucking absurd any professional W2 employee is paying more percentage in taxes vs someone who just happens to have idle cash at hand - but it’s more of a “social contract” thing for me than actual tax policy.
The issue really is tax deferral strategies and wealthy folks being able to consistently find strategies to roll over investment dollars into new investments without ever having their gains be subject to pretty much any tax. Stuff like stock buybacks, tax loss harvesting, 1031 exchanges etc.
I don’t think the “loans against a stock portfolio” tax dodge thing is nearly as large as social media decided to pretend it is - but I am very much in favor of taxing any realized value at regular capital gains rates at the time of realization. This means you will probably need to sell a bit of an asset to pay the taxes - which is the entire point.
Unrealized gains are tricky. I’ve been in a situation as a bootstrapped startup founder where I owed “phantom” tax on money I had not yet realized and ended up taking a loss on years later. Zero ability to recover those taxes paid. It put me into a hole for over half a decade. This gives huge preference to those with existing wealth and makes it even harder for someone with nothing to “come up” without handing out a majority share of their company/idea to idle capital. Especially if you’re just doing regular economy things to create a small business doing boring stuff at single digit net margins.
The common theme behind the avoidance mechanisms is "keeping the gain unrealized." Going after preferential treatment of unrealized gains categorically attacks every single one of these tricks. It nukes the hydra rather than trying to chop off heads one at a time.
I am of course deeply sympathetic to the "founder scenario," but I'd rather address it specifically than hobble tax collection generally. This could be done by a "payment in-kind" mechanism. If we wanted to steer it towards startups I'm sure the valuation rules could be set to do so, but I'd personally like to aim higher and go for progressive taxation on the basis of market cap to encourage company splitting and competition. Industries with the most dramatic returns-to-scale (semiconductors) could be exempted.
That said, the (in)ability for new founders to self-fund is deeply tied to the same gini coefficient story as the rest of the economy, so policy that addresses the gini story should help bootstrappers as well.
> Going after preferential treatment of unrealized gains categorically attacks every single one of these tricks. It nukes the hydra rather than trying to chop off heads one at a time.
Now think about how they're going to respond to it.
A major problem with taxing unrealized gains is how to measure them. For publicly traded companies that's pretty easy -- the stock is undergoing regular market transactions so you have a pretty good idea about the price. But what about assets that aren't? Closely held private companies that aren't listed on an exchange and haven't undergone any stock transactions in ten years. Art. The value -- or liability -- of a private contract for the future sale of goods at a defined price, when the market value of those goods might have since changed, or depending on what they are, be indeterminate.
It creates endless opportunities for playing games, and that complexity is exactly what allows the people who can afford fancy accountants to pay less in tax than everybody else. If you want to fix it you need to make the system simpler rather than even more complicated.
IIRC one of the Scandinavian nations has solved this with property taxes: you self-declare the value of your property, but the state has the right to buy it at that price.
That only seems like a solution until the loophole-finders get on with their jobs.
Suppose you own a company and you have a trusted friend. The company, not the owner, enters into a contract with the friend that gives them the right to buy all the company's assets for 1% of their value, if the friend can satisfy a condition that they could only satisfy with the cooperation of the existing owner. Then the owner declares that the company is only worth 2% of its ordinary value -- which might even be an overestimate given the risk that the friend could execute the contract. If the government exercises the option to buy the company, they get a company bound to an obligation to sell all its assets to the friend, and then the previous owner cooperates in satisfying the condition in exchange for the friend giving them the assets back.
"We'll ban that", you say. But then they'll be more subtle about it, and the only way to really catch them is to have a good way of determining the true value of the company, which was the original problem.
You also run into trouble with that one because people can play that game the other way. You have an asset which on paper should be worth around a million dollars, but its value has already been hollowed out or de facto assigned to someone else without actually transferring the asset. Then the owner declares that it's worth $400,000 and the government pays them $400,000 thinking they're going to make $600,000, only to find out that it's actually worthless.
> The fact that an earned derivative gets heavily taxed and an unearned derivative gets lightly taxed is so stupendously wacky that the absurdity is obvious, but the integral is the core problem.
The fact is that we have no problems with taxing consumption (billionaire buys yacht) but we have an extremely sensible aversion to taxing money spent on productive investment (company pays to build new factory). So business expenses are tax deductions.
The sensible way to handle this is to just use VAT, but then people say "what if they reinvest everything into new ventures and stop buying yachts"? The answer to which is supposed to be "that's what we want them to do". (They also say "consumption taxes are regressive" even though that's easy to fix by giving everyone a large fixed refundable tax credit.)
So to placate them we use something claimed to be an income tax and then push on it until it acts like a consumption tax. Dividends are taxable, but here's a 401k that makes them not while you're of working age and so you only have to pay the tax when you retire and start spending it. Capital gains are taxable, but only when you realize them, so they get deferred as long as you keep them invested in the same company but if you withdraw the money to spend it, that's when you pay. And so on.
This is, of course, dumb, because it makes everything unnecessarily complicated and creates lots of opportunities for tax avoidance, and because it makes the problem you're going to complain about next worse: If they keep reinvesting the money then there is too much economic power in the hands of too few people. But look at what you've wrought. Now if someone invests in a company they get to defer the taxes until they want to spend the money or -- and this is the big problem -- they want to invest it in something else. You have to pay the tax now if you want to do that.
Which means that everybody wants their money to be in some ever-expanding megacorp that allows them to defer the tax until they actually want to spend it, instead of taking the profits from one company and using it to invest in a new one. Which is the thing that wouldn't have been penalized if you were actually using a consumption tax.
And the corporations are actually the problem, not the owners. However much power is concentrated into Microsoft or Apple or Google, that's how much power the CEO of that company will have, regardless of what percentage of the company's stock they own. So you can't fix it by taxing the owners, you have to fix it by making the companies smaller, and that's the thing the existing system makes worse.
This makes the most sense. The trick is to tax all realized value.
I’m happy for billionaires have their net worth go up, as long as it can be taxed if any amount they realize.
So this includes using their networth as collateral, donations (even to charities) and passing as inheritance (which should be taxed upon death)
And if the margin all tax rate over a 1 million is extremely high, then it’s pointless being a paper billionaire. People would actually spend their wealth and contribute to the economy
Yes, I pay property taxes every year that are based on the current assessed values of my home and car. Only special classes of assets are subject to property taxes. "Wealth tax" proposals are a generalization of the idea of real property taxes so as to stop penalizing specific asset classes like homes.
If you dig into how property tax is allocated, your tax will only go up if your house appreciates more than similar properties - which usually has something like redevelopment or other externality.
It is normally not a fixed percentage of your value, but simply "here's what the county/city paid this/next year, divided amongst the properties proportionate to the value."
Some, like sewer, etc, are per-property, but most are done via the above.
California is an outlier because of Prop-13 but that makes it usually better except when buying.
Side-effects of this can mean that development in your district can reduce your tax rate, depending on what kind of development and who lives there (as property tax is often mainly a school tax, a development for 55+ will bring in more tax payers but not increase the school burden noticeably).
I'm sure it depends on the jurisdiction, but all the property taxes I have ever paid (which, to be fair, has been in one county) have been a fixed percentage of the value of the property.
I don't think the percentage has changed since I moved here, though the dollar amount I pay has gone up significantly as the assessed value of my house has risen.
Like with any tax, I'm guessing the rate would change if the county's revenues didn't match their expenses?
In my county, tax rates have to be renewed every year. So every year there's a chance for the rates to change. There is an automatic suggestion of a "no new revenue" option formulated by the appraisal district based on their new assessments, there are then voter approved changes, and then the county (or taxing entity) decides.
My property taxes have practically only gone up over the years, but the tax rates from the various entities have mostly trended downwards.
Right. Property taxes are a combination of fee-for-service for infrastructure, and a "congestion tax" for occupying land that nobody else can use. It's explicitly not a wealth tax because you owe it even if you have 0% equity.
You owe tax based on your percentage of ownership. The taxing authority doesn't care about equity because you own 100% of your house (albeit with a lien) even if your outstanding mortgage obligations exceed the value of the house. Generally, when you close on a house in the US, you walk away with the title to the house and a mortgage equal to a large percentage of the house's value. The bank only owes property taxes if they foreclose on the property and take the title from you.
yes, we do. it's called a property tax, and it goes up based on market value regardless of whether you sold the property or not.
it is absolutely a tax on unrealized gains
and it's a huge problem to where people who bought the house long ago (or it was passed down to them) but whose income hasn't kept pace (like many people's) can't afford the increased property taxes anymore and have to move
