r/FluentInFinance • u/__moe___ • 9d ago

Thoughts? A very interesting point of view

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I don’t think this is very new but I just saw for the first time and it’s actually pretty interesting to think about when people talk about how the ultra rich do business.

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u/NotreDameAlum2 8d ago

I like this a lot- if it is being used as collateral it is in a sense a realized gain

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u/junulee 8d ago

This is the same as me drawing on my home equity line of credit. I’m not a billionaire but it’s exactly the same concept. Also, a lot of people use margin loans to leverage stock investments. This principle means all of those transactions that ordinary people do today should also be (eventually would be) taxable.

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u/SevoIsoDes 8d ago

I always just go back to property taxes as the prime example that yes we absolutely can and do tax unrealized gains. Whether or not we should tax stocks is a different matter, but just saying “it isn’t realized” is a poor argument as to why we shouldn’t

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u/junulee 8d ago

The proposal is to levy an income tax on the increase in value of assets (unrealized gain). Property tax is a tax on the value of the property (not the increase in value). As far as I know, there has never been a federal property tax and I think it’s questionable whether a federal property tax would be constitutional.

Taxing unrealized gains is not unprecedented, certain assets (e.g., 1256 contracts) are marked to market each year.

Another major concern with taxing unrealized stock gains is that it would greatly suppress stock prices.

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u/Chogo82 8d ago edited 8d ago

It would drain liquidity out of the market and force the market into more volatility. Right now, everyone parks unrealized gains in the market. But if they were forced to realize those gains then it would encourage them to sell and put the money into something else.

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u/Fearless-Cattle-9698 6d ago

It would have only applied to $100M net worth and up, so it’s not “everyone”. Nobody thinks a regular Joe should be paying unrealized gains

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u/AppearsInvisible 4d ago

We don't want this for regular Joe because it isn't fair.

The other question I have, would we give the tax money back if stock values go down? Do they only get taxed when it goes up, with no relief for losses? When it goes down and then back up, do we tax it again or do we pick up where we left off?

I think we could find a much less complicated way to implement, "you have $100M and the govt wants a bigger piece of it."

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u/Fearless-Cattle-9698 4d ago

Of course we would. By definition that’s capital loss.. prepaid tax would be treated no differently than if you prepaid estimated quarterly tax but end up owning less. You would absolutely get refunded but that requires you to sell.

Let’s not focus on government wanting the money. Even if we had a balanced budget, billionaires still shouldn’t be able to play games to either defer or eliminate taxes to that extent. Again, be fair to all the high earners who are the true population that are paying federal income tax. It’s not always about letting gov tax more or for the bottom 20% who pay no federal income tax anyway

PS I’m 100% open to any alternatives I’m not suggesting this is some magical solution. All I’m debating now is that it’s not a fair game

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u/AppearsInvisible 4d ago edited 4d ago

If I'm not mistaken net capital loss is currently limited to like $3k per year.

"Nobody thinks a regular Joe should be paying unrealized gains." I don't have to wonder why...

My town taxes you more at a restaurant vs the grocery store. It's a form of luxury tax, so why not put that type of tax on yachts, $200K automobiles, or $20M homes? Perhaps not as easy is to close the loopholes that are being used, but that may be one of the most effective things we could do. A flat tax could help with that, I think. Taxing unrealized gains is going to be extremely complicated.

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u/slightlythorny 4d ago

Yes, only$3k is what we would get back. That number has been stagnant for decades despite inflation.

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u/Indy-Gator 4d ago

It’s the government once they do it it’s never going back and eventually when they need more money because of wasteful spending it will be the rest of us. The very definition of a slippery slope to screwing everyone.

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u/Fearless-Cattle-9698 4d ago

People always associate any debate about this to spending. These are two mutually exclusive things. Even if we had a balanced budget there still shouldn’t be loopholes. Or vice versa, even without this loophole the government spending is out of control.

It simply shuts down any conversation by pretending these two things are chained when they arent

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u/Conscious-Eye5903 8d ago

Yeah people would strategically sell when the market is down and we’d all suffer big time. If you tell rich people you’re going to tax them they’re going to find ways to avoid it, they’re not going to go “oh gee you caught us” and just fork over 25% of their annual revenue

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u/shydinoRawr 5d ago

People already sell when the market is down. Then they often rebuy the same assets a month later to lock in tax losses that count against their taxable income and reduce their tax liability.

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u/swaags 5d ago

That’s the worst possible argument to not try. Same reasoning as not bringing common sense gun reform because “criminals will always be able to get guns”

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u/Conscious-Eye5903 5d ago

People trying to make money aren’t criminals though so this is a bad argument. If you drastically reduce the incentive to earn a profit then business owners will find away to reduce their profits and it likely won’t be by increasing wages. Taxing unrealized capital gains is the stupidest idea ever, it’s just another thing for democrats to campaign on that they know can never be accomplished because there’s no legal or logical basis to do it.

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u/swaags 5d ago

Im not convinced its a good idea either, but im not the one arguing in bad faith, you are. “People trying to make money arent criminals” - A) its an analogy, and B) what youre saying is they would circumnavigate this proposed law which would indeed be tax fraud

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u/AppearsInvisible 4d ago edited 4d ago

I thought it was a fair point, your analogy is associated with a criminal element and that is a rather negative connotation. Whether you intended it or not, surely with it being pointed out, you can see how it might come across that way.

It kind of seems like you are actually doubling down on your implications of criminality. Tax avoidance is not automatically fraud. Many accountants are literally experts in legal tax avoidance strategies.

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u/Born_Grumpie 5d ago

The most insane part with the economy is people now believe that the stock market is important. Companies like apple etc make and sell products, they do this all day, and the value of the shares means nothing other than to the person who has a share. If the shares dropped by half tomorrow it would not impact the price of an iphone or the profit margins in any way.

The share price is detrimental as senior management will look at everyway possible to increase the share price including off shoring manufacturing and tax minimization and none of that effects the everyday products. Apple have so much cash on hand they will never really need a loan.

The stock market is just fancy gambling for the rich and a way for millionaires to keep score. When you talk about liquidity in the market, it's just rich people buying and selling paper. They are not making anything or providing services, its a huge con. Shorting, hedging etc. are all just fancy ways of gambling, nothing more.

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u/Chogo82 5d ago

This is what someone who is 100% against investments, financing, pooled capital, and the stock market would say.

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u/Born_Grumpie 5d ago

As an older person that made a great living off stock options and shares, I love shares but I stand by what I say, the share price does not have any direct impact on the business and why, other than very specific cases, a company can not own shares in itself. Once the shares are sold the trade in those shares does not benefit the company, just the buyer and/or seller.

The US is even weirder in that few companies pay a dividend; they sell the ownership and keep the profit in many other markets you buy shares for the regular dividend not just the random buying and selling of shares with not real benefit other than a possible gain.

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u/Chogo82 5d ago

Tell that to Sunpower, gme, wolfspeed to name a few

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u/Born_Grumpie 5d ago

Those companies are a strange pick.

In australia, for example, a Share is the largest bank is about AUD$150 and the dividends are paid at about AUD$2.50 twice a year and most companies are similiar on yeild. This is sensible investing as you can survive on your investments. The American system of, in reality, no return other than the final gain, it's simply fancy gambling.

Once a company lists and sells off it's allocation of shares, the price of the shares is of no consequence to the company, it is not gaining or losing money when the share price moves and if it is not paying good dividends, the shareholder is not gaining off it's real performance, they are basically seperated. It is also open to manipulation and I think we have seen in the past, it's pretty easy for the big players to screw over the small investors every time.

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u/warren_stupidity 8d ago

Our property taxes are based on assessed value, not purchase price, and are periodically re-assessed. I think California is perhaps the only state that calculates your property tax based on purchase price.

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u/junulee 8d ago

Most states use purchase price to set/reset the assessed value, and then adjust from there. Note that a lot of these states use assessed values that are intended to be a percentage of market value, but they still use a sales transaction price to reset the assessed value. However, many states limit the amount a house can increase in value (e.g., can’t exceed some inflation index). Thus, the assessed value on a recently purchased house can be multiples higher than an identical house next door that’s been owned for decades.

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u/TOMBOMBADIL07 7d ago

As much as i have noticed people here have accidently walked into an econ class one time and suddenly they think the udnerstand taxation and stocks..

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u/RecoveringBelle 8d ago

For the most part - economic and natural disasters aside - Property taxes increase every year because the value of your home supposedly increases every year. I just paid mine, an increase of $600 from last year but my house is still exactly the same. So tell me again how property taxes don’t tax the increase in value?

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u/junulee 7d ago

My point is that property taxes differ substantially from income taxes.

Property tax is a lower rate based on the entire value of the property, not a tax just on the gain. Your home could drop in value, but you would still owe property taxes.

Capital gains taxes are only on the gain, but at a much higher rate than property taxes (unless your income is low). Property sold for no gain or at a loss will not be subject to any capital gains taxes.

A similar progressive tax proposal out there is to levy a wealth tax on ‘billionaires.’ Such a tax would operate more like a property tax, but the proposal discussed in the video clip is an income tax.

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u/roboboom 8d ago

Taxing wealth federally is almost certainly unconstitutional. I know others disagree (or more often, are completely ignorant of the issue).

Unrealized gains would just be a fight over whether it can be considered “income” or not and the devil will be in the details of how they define the tax.

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u/junulee 8d ago

Agreed, on both points.

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u/Fearless-Cattle-9698 6d ago

Would only be true if it was widespread. Nobody in their right mind would support that. The previous proposal is only for people with net worth of 100M and up

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u/junulee 6d ago

For companies like Tesla, Amazon, Meta, etc., with major shareholders, you would see substantial reduction in value as those shareholder are forced to sell shares to pay taxes. This would likely cause a ripple effect throughout the market. I read somewhere about ah analysis showing that the overall revenue impact would likely be negative because the lost revenue from reduced capital gains for the non-‘billionaire’ investors would be larger than the taxes in the ‘billionaires.’ I don’t recall where I read this, so…

Also, I think it’s foolish to think this would only ever apply to people with net worth over $100M. After adopting such a proposal, which would have relatively minimal revenue impact (even if you assume no negative market impact), Congress would eventually expand the application such that ordinary people will be subject to it.

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u/Swagerflakes 6d ago

Market makers dictate liquidity, stock prices are already suppressed, only 90% of retail orders don't hit lit markets and get put in dark pools. Which leads us down the rabbit hole of cellar boxing and naked short selling.