Cosmic Question Asker
- Aug 17, 2008
- Reaction score
- San Antonio, TX
I agree in principle that we need to do a better job broadening the tax base towards the top, and I'd love to see a few additional higher marginal tax rates.
Here, specifically, I disagree though. Unrealized gains are just that - paper gains. You can't use unrealized gains in Apple stock to buy a yacht. You can't even use them to buy groceries. They're merely the potential for gains if and when you choose to sell. If Yoy buy shares in Apple and it goes up 50% one year, you continue holding, and then it goes down 75% the next and you sell at a net loss of 62.5% of your initial investment, you get to write that off on your taxes because you lost money. It doesn't matter if you lost money because you were really smart or really dumb, the tax code doesn't make moral judgements on why gains or losses happen, it just taxes them. This would also likely have the effect of forcing people to sell to pay tax bills if unrealized investment gains or losses are large relative to current income (read: most older Americans approching retirement, during market volatility) which is the kind of thing that isn't great for market efficiency, having a whole bunch of market oarticipants transacting for non-economic reasons.
Where I would like to see tax reform on investments is in two areas - one, the long term capital gains tax rate being well below most Americans' ordinary income tax rates rewards capital over labor, which to me doesn't make much sense, and I'd support taxing realized investment gains as ordinary income. Two, I'm ultmately agnostic on the estate tax question with one important caveat - we should either have an estate tx, no exceptions, or if we don't, then we should do away with the resetting of cost basis at time of death. If someone leaves me $5mm in appreciated Apple stock bought at a cost basis of $2 a share, that sneaks under the estate tax cap, but those shares come to me both untaxed, and at a cost basis of whatever their market value was when I inherited them (currently about $146 a share). That's a pretty huge way to shelter investment gains.
I'd also rather see additional higher marginal tax rates than higher corporate taxes - corporations are essentially pass-thru vehicles, I care way less what Amazon pays in income taxes than i do what Jeff Bezos pays in income taxes, and I'd happily trade lower corporate tax rates for higher personal ones on the ultra rich.
The issue I have with paper gains not being taxable income is that any other means of non-liquid asset are taxed. Yes you have to pull the money out of the stocks by selling the shares. But you also have to do the same with real estate. Which you still have to pay an annual tax on. The share of ownership you have in a privately held company are not considered on paper. And you have to pay out based on that company's profits annually. Why are they factored entirely differently when something has public ownership via the market? You may not have directly benefitted from that profit in spendable cash in a given year, but you still get to count it as an asset for other purposes. If its an asset, and its value grows over a given time frame that is taxable for other assets, then it should also be taxable for that same given time frame. It doesn't matter whether or not you can use the asset immediately to buy groceries. It is part of your total value financially.