Something we can all agree on?

[Wrestleknownothing]

The Democratic proposal to tax unrealized gains is an incredibly bad idea.

The current proposal is on anyone worth more than $100 million with at least 80% of their worth in liquid assets. There are almost too many things wrong with this to list, but hear goes.

- There is no way over time that $100 million will remain the limit. It will soon be $10 million, then $1 million, then $500k, etc. Governments have zero discipline. A new kind of revenue will always be grown. And the only exemption will be for legislators.

- The value of illiquid assets will suddenly become the province of the one entity that stands to gain from inflating that opinion. The moral hazard here is clear. 

- The value used for liquid assets will also be incorrect. For valuation purposes of equities, for example, we use the closing price. But this is typically the price of buying or selling a very small number of shares. Anyone covered by the tax will likely own a large number of shares. Forced selling to meet a tax obligation will depress those shares, meaning more shares will need to be sold to raise 25% of the incorrect value, meaning the effective tax will be greater than 25%. Meanwhile, all of our shares will also be worth less, and not for economic reasons.

- Anyone wealthy enough to be covered by the tax initially is also wealthy enough to leave the country. Capital flight will be real.

- The incentive is perverse. One theory of taxation is you tax the thing you want less of. Similar to tariffs, it makes the thing more expensive and incentivizes people to seek alternatives. The alternative to investing is consuming. And like tariffs it makes the alternative more expensive by removing competitive pressure. So we consume more at inflated prices, so we get less.

I am sure there are other reasons as well that I haven't thought of. What say all of you?

[ionel]

2 minutes ago, Wrestleknownothing said:

 

- The incentive is perverse. One theory of taxation is you tax the thing you want less of.

Lets just tax Democrats.  They love taxes and want to pay their fair share.  But more importantly the rest of us want less of em.  If we tax them they may dissapear. 

[Offthemat]

My hero!

[WrestlingRasta]

It’s a terrible idea that I don’t think has any chance of passing, which they probably know, also knowing it will get some votes. 

[Paul158]

Like in most states that go after the millionaires or the wealthy it doesn't work out. For some reason the powers that be forget the rich can just move. So, instead of getting more revenue they get zero. You would think they could figure that out and not be so greedy.

[Paul158]

1 hour ago, Wrestleknownothing said:

The Democratic proposal to tax unrealized gains is an incredibly bad idea.

The current proposal is on anyone worth more than $100 million with at least 80% of their worth in liquid assets. There are almost too many things wrong with this to list, but hear goes.

- There is no way over time that $100 million will remain the limit. It will soon be $10 million, then $1 million, then $500k, etc. Governments have zero discipline. A new kind of revenue will always be grown. And the only exemption will be for legislators.

- The value of illiquid assets will suddenly become the province of the one entity that stands to gain from inflating that opinion. The moral hazard here is clear. 

- The value used for liquid assets will also be incorrect. For valuation purposes of equities, for example, we use the closing price. But this is typically the price of buying or selling a very small number of shares. Anyone covered by the tax will likely own a large number of shares. Forced selling to meet a tax obligation will depress those shares, meaning more shares will need to be sold to raise 25% of the incorrect value, meaning the effective tax will be greater than 25%. Meanwhile, all of our shares will also be worth less, and not for economic reasons.

- Anyone wealthy enough to be covered by the tax initially is also wealthy enough to leave the country. Capital flight will be real.

- The incentive is perverse. One theory of taxation is you tax the thing you want less of. Similar to tariffs, it makes the thing more expensive and incentivizes people to seek alternatives. The alternative to investing is consuming. And like tariffs it makes the alternative more expensive by removing competitive pressure. So we consume more at inflated prices, so we get less.

I am sure there are other reasons as well that I haven't thought of. What say all of you?

Nice work. For some reason they always forget that the wealthy can just move. Then they get zero revenue. Which would happen.

[ionel]

Here's a real world example.  Let say ~30 years ago I bought some farm land for $1,500/ac and its now worth $16,500/ac.  In this theoretical example I've been paying the property taxes on the increasing assessed value every year along with the increasing income taxes every year.  Now I'm faced with taxes on an unrealized $3M gain.  How am I going to pay that?

Now you could say doesn't apply since not a liquid asset but just like the $100M to $1M to &500k as Wkn indicated once politicians get their claws in a new revenue stream they will just keep expanding.

But to the liquid asset point.  Let's say Wkn drives down to Kentucky to purchase a full barrel of his favorite bourbon.  But let's be real, if he makes the drive he's gonna fill the truck with four barrels, but I digress.  As soon as he leaves the distillery for some reason that bourbon just went up in value 50%.  Liquid assets, tax law applies to Wkn when is he going to pay the tax?  Will he try to consume before filling taxes?  Now you might ask how long would it take Wkn to consume a full barrel of bourbon but thats not the point.  

[Paul158]

4 minutes ago, ionel said:

Here's a real world example.  Let say ~30 years ago I bought some farm land for $1,500/ac and its now worth $16,500/ac.  In this theoretical example I've been paying the property taxes on the increasing assessed value every year along with the increasing income taxes every year.  Now I'm faced with taxes on an unrealized $3M gain.  How am I going to pay that?

Now you could say doesn't apply since not a liquid asset but just like the $100M to $1M to &500k as Wkn indicated once politicians get their claws in a new revenue stream they will just keep expanding.

But to the liquid asset point.  Let's say Wkn drives down to Kentucky to purchase a full barrel of his favorite bourbon.  But let's be real, if he makes the drive he's gonna fill the truck with four barrels, but I digress.  As soon as he leaves the distillery for some reason that bourbon just went up in value 50%.  Liquid assets, tax law applies to Wkn when is he going to pay the tax?  Will he try to consume before filling taxes?  Now you might ask how long would it take Wkn to consume a full barrel of bourbon but thats not the point.  

What is the over/under. I'll go with 1 year. If we all help out 2 weeks.

[Caveira]

My financial advisor isn’t worried about that passing.  Which I’m not sure makes me happy or crazy lol.   With that said this is the by far best evidence it won’t

edit:   (sorry…. I clicked an ad.  Then I clicked save.   Accidental.)

Edited August 31 by Caveira

[Wrestleknownothing]

13 minutes ago, ionel said:

Here's a real world example.  Let say ~30 years ago I bought some farm land for $1,500/ac and its now worth $16,500/ac.  In this theoretical example I've been paying the property taxes on the increasing assessed value every year along with the increasing income taxes every year.  Now I'm faced with taxes on an unrealized $3M gain.  How am I going to pay that?

Now you could say doesn't apply since not a liquid asset but just like the $100M to $1M to &500k as Wkn indicated once politicians get their claws in a new revenue stream they will just keep expanding.

But to the liquid asset point.  Let's say Wkn drives down to Kentucky to purchase a full barrel of his favorite bourbon.  But let's be real, if he makes the drive he's gonna fill the truck with four barrels, but I digress.  As soon as he leaves the distillery for some reason that bourbon just went up in value 50%.  Liquid assets, tax law applies to Wkn when is he going to pay the tax?  Will he try to consume before filling taxes?  Now you might ask how long would it take Wkn to consume a full barrel of bourbon but thats not the point.  

They can have my bourbon when they pry it from my cold, dead hands. Which, given the volume of bourbon we are talking about, may be soon.

[VakAttack]

It's an attempt to go after a very real issue of how the uberwealthy avoid taxation.  They allow an asset to grow in value but never sell, and instead take out loans against that value increase.  It's a real problem, but I am not knowledgeable enough to know if this will be an effective attack on that.  I don't think the "capital flight" argument is likely to be real, stuff like that is always said when some new tax is imposed but very rarely comes to fruition.

I do agree with the first line of attack that there is a certain inertia to these things where it starts at $100 million and the slowly works it's way down, but that's a problem for future policy, not this policy, i.e. when someone tries to shift it downward, it should be attacked.  Frankly, none of the arguments made here particularly move me, though I admit I'm not the world's smartest investor guy.

A lot of your attacks on the idea seem to be about downstream "I think this could happen in response to this policy" not actual demonstrable direct effects from the policy itself.  It's also undeniable that extremely wealthy people are abusing the system in the way that this tax is designed to attack.  So how would you propose attacking this method of tax avoidance?  Taxing the loans themselves as income?

[Wrestleknownothing]

2 hours ago, VakAttack said:

It's an attempt to go after a very real issue of how the uberwealthy avoid taxation.  They allow an asset to grow in value but never sell, and instead take out loans against that value increase.  It's a real problem, but I am not knowledgeable enough to know if this will be an effective attack on that.  I don't think the "capital flight" argument is likely to be real, stuff like that is always said when some new tax is imposed but very rarely comes to fruition.

I do agree with the first line of attack that there is a certain inertia to these things where it starts at $100 million and the slowly works it's way down, but that's a problem for future policy, not this policy, i.e. when someone tries to shift it downward, it should be attacked.  Frankly, none of the arguments made here particularly move me, though I admit I'm not the world's smartest investor guy.

A lot of your attacks on the idea seem to be about downstream "I think this could happen in response to this policy" not actual demonstrable direct effects from the policy itself.  It's also undeniable that extremely wealthy people are abusing the system in the way that this tax is designed to attack.  So how would you propose attacking this method of tax avoidance?  Taxing the loans themselves as income?

I have made that argument elsewhere. Most of structured finance is about taxes and how to avoid/minimize them.

The presence of unrealized gains should not trigger taxes. The attempts to monetize the gains without selling is what should be gone after.

But the devil is always in the detail. Most (I think without actually checking) of Musk's Tesla shares are posted as collateral against a variety of loans, including loans taken out to buy Twitter. But he still has economic exposure to Tesla in most, if not all, cases. Loans to finance investment seem like something we want to encourage.

But loans to finance consumption? Perhaps not. So maybe close the buy, borrow, die loophole by not stepping up the basis on anything used as collateral?

[ionel]

2 hours ago, VakAttack said:

 They allow an asset to grow in value but never sell, and instead take out loans against that value increase.  It's a real problem ...

Why is it a problem, they pay back the loan don't they?  Let's take a billionaire like Musk, say he has no car, no house, living out of hotels.  Let's say he's got 3 or 4 billion dollar businesses and is living on company expense account.  He is paying sales tax etc., his businesses are generating a billion $+ of economic activity on which taxes are being paid.  He could take a $million/year salary but isn't.  So why does it matter that he doesn't have income and not paying income tax when he's generating all this other economic activity that does result in tax revenue?  

[VakAttack]

3 minutes ago, ionel said:

Why is it a problem, they pay back the loan don't they?  Let's take a billionaire like Musk, say he has no car, no house, living out of hotels.  Let's say he's got 3 or 4 billion dollar businesses and is living on company expense account.  He is paying sales tax etc., his businesses are generating a billion $+ of economic activity on which taxes are being paid.  He could take a $million/year salary but isn't.  So why does it matter that he doesn't have income and not paying income tax when he's generating all this other economic activity that does result in tax revenue?  

It's a problem, to me, that the wealthiest (or one of the wealthiest) people in the world is paying a much lower percentage on their income than I do.  That's just my opinion, you may not share it.

 

7 minutes ago, Wrestleknownothing said:

I have made that argument elsewhere. Most of structured finance is about taxes and how to avoid/minimize them.

The presence of unrealized gains should not trigger taxes. The attempts to monetize the gains without selling is what should be gone after.

But the devil is always in the detail. Most (I think without actually checking) of Musk's Tesla shares are posted as collateral against a variety of loans, including loans taken out to buy Twitter. But he still has economic exposure to Tesla in most, if not all, cases. Loans to finance investment seem like something we want to encourage.

But loans to finance consumption? Perhaps not. So maybe close the buy, borrow, die loophole by not stepping up the basis on anything used as collateral?

I'm interested.  I do think this is an issue, as I mentioned to Ionel above, but this is far outside my area of expertise as to how to attack it.  So I appreciate the idea of what the policy is designed to attack, but I fully admit, I have no idea if it will actually be effective in doing so.

[ionel]

4 minutes ago, VakAttack said:

It's a problem, to me, that the wealthiest (or one of the wealthiest) people in the world is paying a much lower percentage on their income than I do.  That's just my opinion, you may not share it.

 

So its more of a jealously thing.  Maybe we should enact a jealously tax, if a majority of the people vote to be jealous of someone's wealth then the government can take 25% of their assets, but maybe 25% isn't their fair share so let's make it 50% of their assets.  

btw:  I want 50% of Wkn's best bourbon.  

[VakAttack]

20 minutes ago, ionel said:

So its more of a jealously thing.  Maybe we should enact a jealously tax, if a majority of the people vote to be jealous of someone's wealth then the government can take 25% of their assets, but maybe 25% isn't their fair share so let's make it 50% of their assets.  

btw:  I want 50% of Wkn's best bourbon.  

No. If they were paying the percentage of their income they should be under the tax code, I wouldn't care. They're using things like unrealized gains to hide their income.

[ionel]

5 minutes ago, VakAttack said:

No. If they were paying the percentage of their income they should be under the tax code, I wouldn't care. They're using things like unrealized gains to hide their income.

There is no personal income for the owner in my example.  However million to billions of dollars of income and tax is generated by the business activity.  

Edited August 31 by ionel

[VakAttack]

5 minutes ago, ionel said:

There is no personal income for the owner in my example.  However million to billions of dollars of income and tax is generated by the business activity.  

It's also not a liquid asset, as you yourself acknowledged, which makes it a strawman in this argument.

[ionel]

8 minutes ago, VakAttack said:

It's also not a liquid asset, as you yourself acknowledged, which makes it a strawman in this argument.

That makes no sense.  You don't seem to want tax revenue you just want punishment. 

[VakAttack]

9 minutes ago, ionel said:

That makes no sense.  You don't seem to want tax revenue you just want punishment. 

How is trying to get taxation commensurate with their actual income punishment?

[Scouts Honor]

17 hours ago, ionel said:

Here's a real world example.  Let say ~30 years ago I bought some farm land for $1,500/ac and its now worth $16,500/ac.  In this theoretical example I've been paying the property taxes on the increasing assessed value every year along with the increasing income taxes every year.  Now I'm faced with taxes on an unrealized $3M gain.  How am I going to pay that?

Now you could say doesn't apply since not a liquid asset but just like the $100M to $1M to &500k as Wkn indicated once politicians get their claws in a new revenue stream they will just keep expanding.

But to the liquid asset point.  Let's say Wkn drives down to Kentucky to purchase a full barrel of his favorite bourbon.  But let's be real, if he makes the drive he's gonna fill the truck with four barrels, but I digress.  As soon as he leaves the distillery for some reason that bourbon just went up in value 50%.  Liquid assets, tax law applies to Wkn when is he going to pay the tax?  Will he try to consume before filling taxes?  Now you might ask how long would it take Wkn to consume a full barrel of bourbon but thats not the point.  

great point

we added a .5 cent tax a decade ago to pay for something in our community.

the ballpark was paid off about 3 years ago

guess what

the tax stayed

[ionel]

4 minutes ago, VakAttack said:

How is trying to get taxation commensurate with their actual income punishment?

There is no income, living off expenses.

[VakAttack]

5 minutes ago, ionel said:

There is no income, living off expenses.

Households worth over $100 million have no income.

 

[ionel]

2 minutes ago, VakAttack said:

Households worth over $100 million have no income.

 

In this example why would this theoretical Musk need income?  You are being obtuse aren't you Jan.  

[VakAttack]

8 minutes ago, ionel said:

In this example why would this theoretical Musk need income?  You are being obtuse aren't you Jan.  

Who said this person needs it?  Super wealthy people don't necessarily need any more money, but they still want it and so they go and get it.