Biggest argument people are going to have against this is reading the headline and then realizing most their retirement is in the form of unrealized gains. But if you then just read the qualifier of $100 million, you will quickly realize we are not talking about normal people here. We aren’t even talking about normal rich people. We are talking about the 1% of 1% people.
For perspective: $100MM is enough for at least 20 people to be completely set for life.
That’s enough for 50 people to live comfortably on just the gains for an entire lifetime.
Government has never expanded their reach when given power. Civil forfeiture was about combating organized crime not funding police departments. Border patrol has expanded reasonable searches from crossings to cover entire states. Give it 20 year and this will apply to gains over a million.
Yes, and because of this the corporate tax rate and top marginal tax rate has been trending up for the past half century… right?
I mean… oh no? A million is still wildly more than any one human needs or should have so who gives a shit if they tax it. Also unsure if a retirement fund would exactly count as tradable assets anyways. But also, if we accidentally manage to kill the fucking stock market because of this in only two years that be fucking cool as hell lol.
When a house costs a million dollars, any person easily needs at least a million dollars.
You would be surprised. If you worked a decent job early in life, moved up the ladder, retired as upper middle class making $250k-ish, it is kind of expected to have about 2-3 mil in your retirement. Hell, if you work a half way decent government job and invested wisely your entire life and didn’t have stupid amounts of debt, you should have about a mil in retirement.
1 mil in retirement gives you about 5,500 per month at a growth rate of 6%, withdraw rate of 3%, and annual inflation at 3%. The current recommended retirement is a little under a mil.
As far as retirement funds counting as tradable assets, that is how your 401k accounts work. It is literally a stock market account. The question comes down to when the tax is paid, pre or post withdrawal. In a roth IRA you pay the tax coming in. In a traditional IRA you pay tax when the money comes out. Either way, as long as the money stays in the account you can make it liquid, put it in a stock, bond, mutual fund, whatever you want as long as the account can do it; but in the end it is in a trading account and short of the cash in there, it is a tradable asset.
In before someone making 35k a year says this is unfair or discriminatory.
IMO this sounds like a step in the right direction. Anything to shift the tax burden onto the wealthy should be on the table.
I’ve always wondered about this. Do you get bonus points or something if you’re “in before” some fictional comment you are anticipating?
The rule could create some perverse incentives, such as discouraging some startup founders from taking their companies public.
Honestly good, companies going public creates perverse incentives for those companies to screw over their customers and the economy at large out of a drive for quarterly gains.
It applies only to individuals with at least $100 million in wealth who do not pay at least a 25% tax rate on their income (inclusive of unrealized capital gains). Payments can be spread out over subsequent years.
Within that $100 million club, you’d only pay taxes on unrealized capital gains if at least 80% of your wealth is in tradeable assets (i.e., not shares of private startups or real estate). One caveat for this illiquid group is that there would be a deferred tax of up to 10% on unrealized capital gains upon exit.
Without any changes, this would push investors towards the non-included class of real estate, which would exacerbate the housing crisis.
And on top of that, I can think of a million ways they could skirt this regulation with some clever accounting.
Create private startup as a personal asset holding fund > Transfer shares of publicly-traded liquid investments to private startup > Give yourself illiquid shares of the startup that have a time-bound restriction before they are allowed to become liquid (but don’t have to become liquid, and can stay illiquid for any longer period of time chosen)
Result: You, the individual, don’t hold all the liquid investments. You hold an illiquid asset that’s backed by all of the liquid investments. Illiquid assets are not fully taxed under this proposal.
They need to fix this sort of loophole, otherwise it would just be an invitation for the ultra-wealthy to posture about how they’re “already being subjected to so many harsh tax laws,” while not actually paying the relevant taxes.
Buddy as soon as they give money to a private start up it wouldn’t be unrealized gains. You can’t give stocks to a startup. Even if you could they would count as income for the business and would be taxed. And even if they went through the regular fuckery of business tax loopholes, they would have stimulated the economy through spending so it’s a win win.
I was mostly thinking of this on a continuous basis.
This tax would be assessed continuously, but it would only be assessed once as an income tax for the business. Then, the business is not considered an individual anymore, and doesn’t fall under these new tax rules, meaning any investments would no longer have an ongoing tax on unrealized gains, only once realized. Any of these wealthy people could start a new, privately held LLC as a holding entity.
I’m not saying this proposal is bad in any way, I’m certainly in favor of it. I just think it has some problems that could lead to tax loophole fuckery that might reduce the income it’s expected to bring in.
Give yourself illiquid shares of the startup that have a time-bound restriction before they are allowed to become liquid
Ok, but the problem is that unrealized capital gains are being used for disposable income by taking out loans using a tradeable asset as collateral. I suspect it would be much harder to get a loan using an illiquid asset like this one.
True, but these ultra-wealthy individuals aren’t taking loans out on anywhere near the majority of their portfolios.
If a billionaire has $1B, they can put $900m in the illiquid startup, and $100m in their own brokerage account.
They can get loans using $100m of collateral, only paying tax on $100m, instead of paying tax on the other $900m that they aren’t even actively using for loan collateralization.
this would push investors towards the non-included class of real estate
You’d have to pay property tax then, and unless your in California your paying that on your “unrealized gains” as well since they’ll re-asses your property every few years and tax you on the newly assessed value.
True, but all home buyers already pay property tax for the properties they’re buying up, and these properties will be owned by someone, regardless. If an institutional home-buying group doesn’t buy a house to immediately rent out for higher than the mortgage rate, someone else will get a mortgage on it for themselves instead.
But if these wealthy investors are now not earning as much money from intangible assets with highly elastic demand, such as stocks, they might not have much of an issue switching more investment capital to a tangible asset with more inelastic demand, for a now only slightly lower rate of return: Real Estate.
The fact that real estate was excluded from taxable assets in this proposal, when the only subject of these taxes are people with over $100m income, is crazy to me. It should be included.
It cannot be that hard to setup a fair tax on ultra wealthy realized gains or wealth transfers, even via loans or other shelters. Focusing on unrealized gains is beneficial though because it forces them to continue to move money around and likely exit some shelter scenarios to cover.
