A Tax on Unrealized Gains

For the last decade or so, I've been hearing about Modern Monetary Theory and how the government can just print money to buy whatever it wants. Now apparently it has decided it can also tax money that hasn't actually been made.

This idea could work -- badly, and with many negative economic effects, but it could work -- if you forced everyone to sell off all their investments every year, realize their gains, pay taxes on them, and then re-purchase whatever they could afford of their investments with the money they had left after you taxed them. 

The idea as presented is madness, confidently asserted by the very experts and elites who are supposed to know what they are doing.


Assistant Village Idiot said...

The foundation of the theory is "We want money. You have money hidden somewhere. We know you must, because we want it."

I think governments have been using that theory for centuries.

raven said...

"The idea is madness".

This may be so, but credit must be given for consistency.

The current lot of scoundrels and wastrels are proving,against all odds, that Mencken was insufficiently cynical.

David Foster said...

This and other Dem proposals would be very harmful to the funding of startup ventures and early-stage companies. The nature of investing in such companies is that you get a lot of failures and an occasional home run. If unrealized games were taxed, it could make it difficult to hold such homerun investments for a number of years…particularly when the unrealized-gain taxing is combined with the proposed capital gains tax increase for people with higher incomes (in a particular year) and the effects of inflation.

Taxing unrealized gains requires *valuation* of the investments....hiring valuation firms to assess companies whose entire current value may be only $5 or $20 million would be economically very questionable. It's already hard enough to start a startup, get initial funding, and make it work...this proposal would considerably increase the difficulties.

The Dem draft tax proposal, as of about a month ago, also called for drastically cutting the benefit of the Qualified Small Business Stock tax incentive. (which requires holding the stock for 5 years)

And there are also proposals to restrict the investment options of Self-Directed IRAs…see this article:


In the Democrat worldview, all of these harms to the investment process are actually *benefits*, since innovation investments would increasingly be those directed by the government and steered toward politically-favored industries, technologies, and groups.

Grim said...

I suppose I should look on the bright side: it's an invitation to obtain substantial investments as a start-up that loses money. Assuming it works both ways, unrealized losses will be a big business.

That makes about as much economic sense as the rest of this.

J Melcher said...

"Valuation" of gains is part and parcel of the whole anti-market mindset. Just like Marx's critique of "expropriated value of labor". Any time we hear the cry of "Unfair!" we have encountered this mental model.

Somehow it's assumed that a God's Eye View of a situation will reveal the true value (whatever value may be) of things -- an hour of unskilled labor; the highest and best use of an acre of land; the inspirational effect of a Hunter Biden painting... So a system devoted to making all things "fair" will need thousands of appraisers and evaluators ferreting out transactions (and potential transactions) happening at other-than-fair-share values. Like the county real estate appraisal office. THEN, using the tables of valuations, taxes must be imposed "fairly". Veterans and elderly of course pay different tax rates than younger civilians. Certain new businesses get exemptions that establish businesses do not. The unrealized gains in value of some things -- stocks? -- will be taxed, but others -- Hunter Biden paintings -- will not. Thousands of tax rate decisions must be made and published. THEN, there are the collector/enforcers. Serving warrants and filing liens and standing on the courthouse steps conducting auctions ... Of course all backed by people who carry badges and guns.

Grim said...

I saw a wag asking how many unrealized children he could declare on his tax return.

jabrwok said...

Next will be the Unrealized Income Tax, wherein you pay taxes on the money you didn't make but which the Feds declare that you should've made.

E Hines said...

I'll be claiming my unrealized refund this year.

Eric Hines

Texan99 said...

I believe it's an undocumented refund, but one you identify as deserving.