Maybe I just read the wrong people, but I've sure seen a lot of chatter about Kamala Harris's proposal to tax unrealized capital gains. A couple of notes:
- The proposal is only for people with a net worth above $100 million. In practice it's really not a big deal.
- It's hardly unknown to tax unrealized gains. Your property taxes are based on the current value of your home even if you haven't sold it. Management fees for hedge funds are routinely based on the market value of gains, regardless of whether the underlying assets have been sold. Estate taxes are based on the fair market value of the estate's assets at the time of death. Nonqualified stock options are taxed when exercised, not when sold.
- Nevertheless, I'm not especially in favor of this. There are downsides to taxing unrealized gains, but the real reason I oppose it is that there's little point in creating a weird new tax just to hit the wealthy. At high incomes, income and wealth are almost perfectly correlated:
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This means that if you want to tax the wealth of rich people, you can just establish a surtax on income above $1 million and accomplish nearly the same thing.
Why complicate things? If you think you have the votes for a wealth tax (which is what unrealized gains are), then you also have the votes for a new, higher income tax bracket for income over $1 million. So why not just do that instead?
Taxation of unrealised capital gains on held assets is a very bad idea, rather easily leading to sorts of results that will be politically toxic as well (while also inducing without any doubt massive gaming)
Close out of tax loopholes and particularly a good selling on inheritance tax aimed at large fortunes (and closing various strategies to get around inter-generational transfr) is a better use of political powder - will be far harder to demogogue and far easier to sell
Whereas this idea is fundmentally a bad one and also easily sold to be bad one.
Agree on the inheritance tax; set a reasonable threshold, then a steeply progressive rate above that. Along with a legislative reversal of Citizens United, and other campaign-finance reforms, this would greatly reduce the inordinate influence of the ultra-wealthy.
"Close out of tax loopholes and particularly a good selling on inheritance tax aimed at large fortunes (and closing various strategies to get around inter-generational transfr) is a better use of political powder - will be far harder to demogogue and far easier to sell."
do not underestimate the republican ability to demagogue on any issue, the inheritance tax in particular. i'm sure you've heard the phrase, "death tax."
No underestimation at all
Obvioiusly everything will be opposed by your Opposition.
The judgement is what points in the current political mood represent the best to play Judo on.
Unrealised gains is very easy for them to play judo against the Democrats (as not only objectively bad policy but extremely easy to pain in easily understood terms for general population),
However in the current populist mood, inheritance on the super-rich and other Fair Play time loophole closing
All things will be contested, it is what you are can sell best in a broad fashion - not just what sells to the Pre Sold, your partisans but what gives grab points to sell broadly (and has less traction points to sell against you).
"Capital Gains" is a really bad idea. Just getting rid of that would do the trick without needing to tax unrealized gains.
Capital gains can be a fine idea for promoting capital investment. Can being the operative word.
However lower capital gains on short term holdings - and not short term as defined in your law but more reasonably economically (as under 5 years) - the fact your regs and law defines long-term as anything over 1 year is... well it's terrible. (five year benchmark using as it is the typical period one has in investment funds for an investment period in the typical 10 year limited-life-span private equity investment fund which typically have 1. 10 year with 2 yr extension potential 2. lock-up of the equity during this period [you can't pull out like the traded funds most readers here would be familiar with] - this tells you what the market independent of regs considers real long-term.
Although getting rid of a differential between capital gains and income for anything other than truly long-term investment (which again is equity for 5 yrs plus locked up, that can merit favourable treatment, for e.g. Renewables investment) is a quite reasonble idea.
Suppose there was no special rate at all for capital gains. Then the longer you hold an investment, the greater the tax penalty due entirely to inflation.
Even at low rates, inflation eats into the purchasing power of money, so $1 today is worth MORE than $1 next year or especially, five or ten years from now.
Had a big LOL reading this, thanks! If it were so not politically toxic to close tax loopholes and boost the inheritance tax, both would have been done already. I’m guessing one primary reason for taxing wealth is that almost nobody thinks of themselves as being wealthy, and it’s increasingly hard to even imagine being wealthy, even for people earning relatively high incomes since those generally correlate to living in high cost parts of the country. (The higher income is eaten up by the higher cost of housing, taxes, transportation, etc.) Another big reason is the point Joel raises below: the country increasingly has a group of people with nominally low income but high wealth escaping almost all taxation. It doesn’t matter if that group is “only” 10 or 5 or 1%. They still exist and they’re increasingly being assholes about it, flaunting their wealth while scheming to code whatever income they have as non-income to avoid taxes.
All things are difficult and battle
It is rather the strategy of which one you have a potential to play judo on.
A clearly obviously bad idea is a bad place to fight on.
Whereas inheritance tax if you are ready for this Sales fight and not playing Academic Speak nerd battles, should in the populist mood be a winnable battle
Picking favourable battlefields is the start of winning.
Heirs should be taxed on their gains based on actual basis, not the stepped up basis at inheritance.
+1 Absolutely!
You'll have to define "income" first. For the top 1%, most of their income isn't salary, so it escapes "income taxes." Capital gains taxes are at 15% in most cases, which is way below the top marginal tax rates, and you can take capital losses against capital gains to game that.
The solution to that is simple. Treat dividends and interest as income, just like W-2 income, at regular rates. There is no reason they should be taxed at a lower rate.
D'accord
The whole point of companies buying back their own stock is to convert dividends to capital gains. Dividends make up very little of today's capital markets.
Minor quibble: in general, interest is taxed as ordinary income; it's (some) dividends and capital gains that get the special rate -- you know, to encourage "job creators". But I emphatically agree with your main point, that all income categories should be treated equally for tax purposes.
That includes inheritance, which should be taxed like income from the first dollar.
The first dollar over some inheritance floor, perhaps. Currently the majority of inheritances don’t even go through probate, as large numbers of deceased own very few assets. Taxing the passing on of a couple hundred dollars in a checking account leftover from the last social security check and the car with 50,000 miles on it that a deceased person’s “estate” leaves a comparably poor descendant just seems like a pain in the ass not worth the IRS’s or probate office’s time. Descendants below a certain cut off really shouldn’t have to scramble to pay taxes on the few assets they get, especially if they can’t be sold readily to pay the taxes.
"...Capital gains taxes are at 15% in most cases, ..."
The top rate is considerably higher.
There are low income thresholds below which the rate is 0%, and a high-income threshold above which the rate is 20% for assets held a year or more (the ‘long-term rate’). That’s the top long-term rate. Gains on assets held less than one year are taxed at ordinary-income rates — in theory. Virtually everyone who has significant assets knows enough to avoid paying short-term rates.
Best of all is to set an inflation-adjusted maximum on assets given to offspring and when the last-to-die of a couple passes, take the rest. Let people earn like crazy during their lifetimes, in order to maximize the "selfish genius" genes, but don't reward their mediocre children.
Does anyone think that Don Jr and Eric would be anything except middle managers at Miserable Corp if they weren't the sons of a rich guy? And even more so, that THAT particular rich guy would even have made it to middle management in the first place without Slumlord Fred to Peter Principle him up? .
During their lifetimes, they can already transfer some money every year tax-free. The sooner they start, the more they transfer, but it will never be a billion dollars.
eric and don jr? what about don sr.? at best he'd have been a two-bit con man working out of some boiler room without the $400 million his father funneled to him, much of that slipped to him illegally to avoid th prying eyes of the irs.
Don Sr was included in the last sentence: "And even more so, that THAT particular rich guy".....
Completely agree with the last paragraph.
I seem to recall the Booth School's panel of economic experts (IGM forum) mostly being in line with Kevin on this, a few years back.
This would have another benefit as well. If the assets are sold before death (not qualifying for the step-up basis), then the income would be taxed when realized. So, you get a higher tax on current pre-sale income, plus the tax on sale, which should be at regular income rates as noted by tigersharktoo. Let's add getting rid of the carried interest rule as well, just to make it a complete package.
> At high incomes, income and wealth are almost perfectly correlated
And yet, for wealth above 100M, the graph shows incomes varying from 50K to 3B (or so). 5 to 6 orders of magnitude of income variance for 2 to 3 orders of magnitude of wealth variance?
Some poor fools are surprised by a sudden spurt of income and have to pay taxes. For one thing, there are thousands of large lottery winners every year. I suppose the occasional high-income divorce without adequate planning results in income...
I don't think your chart shows what you think it shows. Neither an accurate or complete account of reported income vs. wealth. For the people with 8-12 figure wealth taxes are optional and mostly avoided. Trusts, stepped up basis, and the high exemption have made inheritance taxes mostly avoidable.
Why the incredible opposition to taxing unrealized gains if it just a slightly different way of taxing income already taxed? Not because the centimillionaires will need to pay an extra hundredth of a percent of their gain for tax prep.
The response to proposing taxing unrealized gains is similar to the response to the proposal to shut down the tax havens after the 9/11 attacks. Boy did that get deep-sixed fast!
My take is unless the goal is to force the sale of assets and so put downward pressure on their value*, the tax has to be sized to be payable out of income. And at that point it might as well be an income tax.
* a definite case of be careful what you wish for.
Tax bills occasioning sale (or loans) on 1% of increase in value are not going to crash the market. The point is that the rich have wealth accumulate without there ever being an 'income' event.
The problem with this kind of taxation (whether you call it a tax on unrealized capital gains or a wealth tax) is that it does not only affect millionaires, because all taxpayers will have to enumerate and declare their net worth on their 1040 to calculate what they owe, even if zero. That is going to be a PITA for everyone who owns a home, cars or anything else of perceived value.
That is... unlikely. Any unrealized gain tax will have a $1-5 million exclusion + the first $1 million in home equity. 99.5%+ of taxpayers will not even have to do a five line estimated tax calculation.
Not really. Income taxes are set really low, so you're thinking that even relatively modest people have to pay income taxes, and it's a PITA to figure income taxes for $80,000.
But most people's wealth is well below $100,000,000. You wouldn't have to bother figuring it out exactly, it's nowhere near the tax threshold.
Yes, exactly how state income tax forms ask you “how much did you buy online and not pay sales tax on?” And everyone with half a brain just checks the “didn’t buy any tax free items online” box or writes in $0.00 (regardless of their actual purchasing) and moves on to the rest of the tax form, secure in the knowledge that - unless you bought something worth thousands of dollars sales tax free, which almost nobody does - the state isn’t coming after you. Takes me about 3 seconds to answer the question. I’m sure “how much inheritance did you receive over $100m?” can be structured the same way, with a 3 second response time for most filers.
Well, kindasorta. For example, your own home in Irvine and Prop 13.
CA is, as they say, a special case. But in states like NJ, property tax assessments are based on valuations that are not updated regularly (and often not for a decade or more). And even after revaluation in a given municipality, the tax rate per $1000 of value is usually adjusted so any increase in the property tax is minimal. I bought my house 8 years ago, and even though it was reevaluated a couple years ago, the property tax I actually pay is only 10% more than it was when I bought it - and it’s real market value has doubled.
That is definitely not the case here in Northern VA. Arlington County, for example, does *annual* reassessments of property values for taxation purposes. I agree this is kind of excessive - it means our mortgage payment (which includes the property tax) adjusts every year which is just annoying for budget planning. But NJ is just corruptly run if they don’t do reassessments more frequently than every decade. https://www.arlingtonva.us/Government/Topics/Real-Estate/Assessments
New Jersey is certainly not devoid of corruption, but ten-year assessment intervals aren’t unusual. I assume the practice is just a holdover from when house prices rose slowly and pretty much in step with inflation, if not slower.
Connecticut mandates a five-year interval. As long as all properties in a town appreciate at similar rates, not too much inequity will accrue. The revaluation corrects whatever does. In between, towns set the mill rate to meet their budgets, so taxes due can change year-to-year for property owners.
Well, for my condo in San Jose California the tax rises every year by a few percent. It is true that the growth is limited by prop. 13 but my increases are roughly comparable with the values that Redfin estimates. The limit only goes into effect in times of real booms.
It looks like the high wealth, lower income crowd is pretty old. Waiting for them to die and getting the money then doesn't seem so bad.
The heirs of the wealthy no longer pay (much) estate/inheritance taxes. Do you imagine Bill Gates kids will pay estate taxes of $56 billion on his $140 billion when he dies? (Minus any estate portion left to charity).
Given that we know it will be impossible to raise taxes on the wealthy in a more reasonable way, we should be trying an all of the above approach. All of the approaches should be supported, even if it isnt your favorite.
Arguing that we shouldnt do X or Y because while impossible to do so, it would be better if we did Z, is a counterproductive argument and a waste of time.
Taxing unrealized capital gains is bad and is never going to happen. Full stop.
What is the policy goal? To stop people from accumulating hundreds of millions to hundreds of billions of dollars with which to buy the ability to skirt tax laws and estate taxes?
What should happen is that the gift tax exemption should be up to $2m per person gifted. That is, if you have $1B you want to give away, you can give $2m to 500 people per year and not pay a cent of tax. It's better to create 500 $2m-aires than it is to allow a money hoarder to hoard $1B.
If you want to encourage rich fucks to distribute their money outside of trusts and other dead-hand control-evading mechanisms, allow for them to give their money away as soon as possible, without just transferring all of it to a relative in a lump sum.
Of course, if the money is in particular assets, allow the gifting to avoid taxes if giving control of land or business by providing exceptions.
There are thousands of tax attorneys and accountants who could devise a relatively simple tax code to encourage money hoarders to give it away and get money into the economy without them just evading all of the estate taxes through mechanisms those money hoarders created through legislation via campaign contributions from all of that hoarded money.
As the exemption for estate taxes is now almost $28M, I do assure you that the number of people who worry about estate taxes at all, let alone hire anyone to do anything about it, is statistically insignificant. That number may adjust downward to $14M per couple, $7M per person as of January 2026, we will see.
There are so few billionaires that any tax on them is really out of principle, not to raise serious revenue, thats why this one is getting some much publicity even though it will never happen.
An adjustment to bring other types of income in light with the tax on wages would go a lot farther than this. The extent of the Repub victory on tax policy in the last three or so decades scannot be overstated.
My last point is that its quite a system where, due to social security and medicare tax, the highest brackets fall upon the working middle class. No reason interest, capital gains, and dividends and rents ought to be less in terms of a rate.
The practical problem with taxing unrealized capital gains is that it requires mark-to-market every year. But investments can fluctuate a lot. If a person realized a large capital gain the previous year and the investment tanks this year, what do you do with this loss? I'm sure it can be done, but it seems unnecessarily complicated.
I don't care as much about when capital gains get taxed as I do about them escaping taxation altogether, which is what happens when someone dies. Inheritance taxes don't touch those unrealized capital gains and the heirs get the "stepped up" basis. Close this loophole. All capital gains should be marked-to-market when someone dies and capital gains tax paid then. Seems much simpler and less prone to accounting chicanery.
What can you do with this loss? You report the loss and get your tax back. Just like you do now when you sell an asset below the price you paid.
It would be good economic policy because it would lower taxes in times of depression. We should have more mechanisms that automatically lower taxes when economic conditions are bad. Stimulus measures by Congress are almost always too slow and too small.
I disagree.
Your proposal of a surtax on income above $1M will be talked about by conservatives as a surtax on income, full stop. Your target of $1M income will become irrelevant; it'll be described as "yet another tax on our income".
Every low propensity voter or those who are too busy to follow policy can understand something like this and your surtax will never get past the first vote and may even lose elections.
A 0.01% wealth tax is much more difficult to be confused or misconstrued. Call it a claw-back on a half-century of bad GOP tax giveaways. "We're going to claw back 50 years of GOP tax giveaways to the super rich."
I disagree with your disagreement. 🙂
If we can't get the message across that this is a NEW tax bracket only applying to income over 1 million dollars, we probably should just hang it up and move to Sweden or someplace.
Democrats have always had difficulty with messaging and countering narratives.
It took nearly a decade before a majority of Americans bought into the ACA and Democrats still haven't found a consistent, effective message to counter "they're going to our guns away".
I trust the Harris/Walz campaign knows what they're doing when they keep the message simple. I haven't seen a technocrat win the people over with nuanced policy.
I rest my case.
A Lie Can Travel Halfway Around the World While the Truth Is Putting On Its Shoes
The key is not making it overly complicated. Don't call it a surtax. It's a new tax bracket on incomes over $1 million.
This can be a one page bill that they can print in a full-page newspaper ad for all to see. It's not nuanced policy. It's simple. Simple messages are easy to understand and therefore difficult to distort.
I don't think even 2/3rds of the country can read and understand a one-page bill. Can they discern the legal nomenclature differences of shall and will, or the importance of the use and placement of commas?
And it wouldn't be quite as simple as you allude to. This one-page bill would read, "insert XXXX", "delete XXXX", "for XXXX, except XXXX and XXXX, notwithstanding XXXX".
Technocrat: "new tax bracket on incomes over $1 million"
Conservative "Populist": "they want to tax us even more on our incomes" and "they want to punish the success of small business owners"
Because some people's income is ONLY capital gains. Tax that at the same rate as salaried income and I have no problem with what you say. Continue taxing it at half the rate of salaried income and I have a huge problem. You're assuming that all income is taxed the same way and it isn't.
Just some thoughts about the graph. The trend line eyeballs to a net worth about tenfold larger than annual income. Looked at in the opposite direction, annual income is about 10% of net worth. That is about what I would expect if everybody at the top of the graph is living off interest and dividends from their accumulated wealth. This accounts for the preponderance of bluish dots (an elderly segment of society). This suggests that only a small portion of the wealthiest segment of society is currently working for a living, though they presumably may have done so in previous years.
Ugh. There is just so much wrong with the data presentation and analysis. To start with using 8 year old data and then further obscuring the data by devoting 75% of the chart to data that is irrelevant makes the chart useless. Also at the scales involved the outliers can make a huge difference. The main purpose is to combat people who are skirting income by obtaining loans with only interest repayment plans against which are secured by their unrealized current gains. Those loans are not taxable the way regular income would be and at the time that an estate is liquidated the full loan repayment can be used to offset the value of the asset.
I don't get the argument. Gains are income, aren't they? The word "unrealized" simply means they're income in the form of value, not cash. To call them wealth is a misnomer. They're a wealth increase.
I get that they're not a salary, since you can also lose on an investment. But I think there's a huge difference between an entrepreneur, who can also lose, and an investor. I say this as a former small entrepreneur: I never understood why people who put in less than 1% of the work (even 0%) in a company but get a huge share of the gain, "realized" or not, should be treated the same way as people who put in 20% or 100%. They are, at that point, mostly investors. I think size makes a huge difference. Stalin, I believe, said quantity is a quality. Taxing unrealized gains as of a certain amount makes sense then. They're only unrealized anyway because the person is rich enough to not have to cash in. Someone with less wealth does cash in and is taxed.
More starkly put, taxing people who need to realize their gains and not people who can afford to leave them unrealized, leads to wealth accumulation among a small minority and a financial oligarchy.
I think what is often missed by the left in tax discussions is how most people will assess whether or not a proposal seems fair. Even if it doesn’t affect them if it doesn’t seem fair if they had to pay it they will be for the most part against it. Also if it’s so complicated they don’t understand it they won’t trust it doesn’t affect them no matter how much they’re told it won’t. Taxing realized capital gains the same as ordinary income can be presented simply and as a fair thing to do. Unrealized gains cannot be.
I don't see anyone here -- or Kevin -- acknowledging the difficulty of assessing (presumably annually) assets like art, collectible books, antiques, etc.
They require appraisals, which can be time consuming and which require expertise. These appraisals are not cheap to start with, but done annually they could get prohibitively expensive very fast (and require tax authorities to have similar expertise available to prevent rampant fraud). Marking to market makes it sound a slot simpler than it is, and for the folks we're talking about with fortunes of over $100 million, it's probably not at all unusual to have such possessions.
Long story short, assessing unrealized wealth gains would be an exceedingly cumbersome process especially if required annually and would require more than a handful new IRS agents with specialized training. You'd need to collect a whole lot of new taxes unavailable elsewhere to make this even remotely worthwhile.
Many here have contested Kevin's chart, but is there any evidence that his basic contention is wrong, namely that people with this kind of wealth also have high incomes easily taxed by adding a surcharge to income taxes (or by creating one or more new marginal brackets(s)?
In short, while I disagree on some of the details, I agree with Kevin's main point.