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April 2, 2019
Sen. Ron Wyden of Oregon, the ranking Democrat on the Senate Finance Committee, announced today that he would soon release a proposal to eliminate massive tax breaks enjoyed by the wealthy on their capital gains income. If successful, the proposal would ensure that income from wealth is taxed just like income from work.
His plan, which he has promised to flesh out in a white paper in the coming weeks, would tax the appreciation of assets owned by the very wealthy as income each year, an approach known as mark-to-market taxation. It would also subject that income to ordinary tax rates rather than special, lower income tax rates that apply to capital gains.
https://itep.org/sweeping-reform-would-tax-capital-gains-like-ordinary-income/
https://www.wsj.com/articles/top-democrat-proposes-annual-tax-on-unrealized-capital-gains-11554217383
(Score: 5, Interesting) by AthanasiusKircher on Sunday April 07 2019, @01:43AM (6 children)
First, I want to be clear that I believe -- to be fair to all -- our tax system definitely needs to tax the wealthy more and allow them fewer loopholes. Charging the same tax rate for capital gains as for regular income makes perfect sense.
But, what the hell is this:
No, that's not like taxing your income from work. That's taxing you based on BS. As any idiot who understands basic market economics knows, an item is only worth the amount someone is willing to pay for it when you sell it. You may buy your house for X dollars, and the "market goes up" and you think your house is worth Y dollars, but no -- your house really isn't worth anything in exchange for currency until you get someone to sign a contract to buy it. And by the time you get around to selling or find a buyer who actually likes the weird renovations you did, it turns out what you can actually get for your house is Z dollars, which may be less or more or between X and Y.
Stock prices may appear to be more precise, but you really never know what your gains will be until the day you liquidate those assets. Investments in stocks and other securities are inherently volatile and everyone knows (or should know) that returns aren't guaranteed.
Yet the government is going to tax you on theoretical "gains"?
The argument seems to be that the rich are getting some sort of "tax dodge" by being able to hold on to securities for long periods and see growth without being taxed until the end. Except the rich do have to pay capital gains at the end -- and they definitely should be made to pay as much for gains as other working income. So where's the dodge?
Besides, anything that's supposed to hit the rich with taxes is going to fail unless we completely rewrite the tax code, get rid of the complexity and loopholes, and start putting a lot of people in prison for tax evasion. But that's probably not going to happen.
So who is this particular idiocy going to hit the most? Probably not the middle-class, thankfully, or the poor, who probably can barely fund some money in a tax-deferred retirement account or Roth IRA each year. No, this is going to hit the upper-middle class: the ones aspiring to do a bit better, to have multiple kids go to good colleges, to retire early, to go on an extra vacation each year. They're the ones who probably can afford to have a few more investments that can't fit into tax-deferred retirement accounts and such, but aren't rich enough to bury their money in an offshore account or afford tax accountants who can hide their wealth and play up massive schemes and loopholes like the rich actually do.
And everyone is just thinking of stocks and such here, but what about other things people buy for investments? If I think a 30-year-old bottle of Scotch is going to make me money and I buy several cases, do I have to pay the government taxes every year for the supposed market value if it goes up? If I buy a painting that hangs on my wall and it accumulates value because of the name of the artist, do I need to pay capital gains tax?
Of course, if the government actually were consistent and start applying capital gains to all assets while you own them, that would completely screw over the middle class if their houses go up in value. But, well, do I get to deduct the depreciation in my car every year? After all, that's a loss in an investment -- a predictable one, but a common one. How about all the electronics and clothes that I own? An iPhone someone bought a couple years ago is worth 10% of its original value -- why not deduct that as a loss? Yeah, it was a stupid and poor investment compared to others people make, but it's a lot of money for some people. If the government is going to start charging people just for holding assets and theoretical gains, why not grant people take breaks for all the depreciation in all the other things they buy and lose value in?? It would be just as absurd.
(Score: 3, Insightful) by Runaway1956 on Sunday April 07 2019, @06:26AM (3 children)
Sometimes, +5 just isn't enough.
If I were to single out just one phrase from your post, it would be "allow them fewer loopholes". Just close the loopholes, and the tax revenue would increase dramatically. Do it across the board, for the wealthy individuals, corporations, foundations, everything. If it's not "tax exempt" then it's taxed at an equal rate to everyone, everywhere. And, maybe we need to reexamine tax exemptions, as well?
(Score: 2) by digitalaudiorock on Sunday April 07 2019, @08:27PM (2 children)
We agree on this one for sure. This has to be one of the most bat shit crazy ideas I've ever heard. The degree to which this would complicate the tax code is unimaginable. He also seems to have forgotten that ordinary middle class folks can actually have investments as well. What happens when you get taxed to death on unrealized gains right before something like the 2008 crash ffs?...makes my head spin.
I actually wouldn't have a problem with some increase in the capital gains tax. That would hit me a bit, but I think there are quite a few folks who make the bulk of their money from this who are really getting a break they don't need...for example that growing group of the 1% who aren't entrepreneurs, but just entitled children of entrepreneurs. At least that's taxing it when you actually make the money.
(Score: 0) by Anonymous Coward on Monday April 08 2019, @01:32AM (1 child)
I seem to recall that several years ago there was a proposal to pretty much do exactly this. It was roundly excoriated as a "death tax" and the idea died of humiliation. My recollection was that even though this was proposed to be only a marginal tax on the inheritances of the uber-wealthy, people were scared into believing that their small Mom-and-Pop family businesses would be taken away from them, etc. Another win for the fear mongers!
(Score: 2) by Runaway1956 on Monday April 08 2019, @01:56PM
Laws do tend to creep. Let us remember seat belt laws. When first passed, a cop couldn't stop you for a seat belt violation. They had to have some other reason to stop you, THEN, they could ticket you if you weren't buckled up. Today - they can and do pull you over for no other reason, then decide how much to harass you after you are stopped.
If the little people were to push a law through to claw away some of the money the 1% holds, you can bet both cheeks of your ass that the law would creep downward, sooner of later. First, they come for the multi-billionaires, then they come for mere billionaires, then they come for multi-millionaires, and on it goes.
Yes, eventually, they'll come for my mere thousands, and yours too.
(Score: 0) by Anonymous Coward on Sunday April 07 2019, @12:30PM
That isn't exactly true, especially for high value real estate. Owners can borrow based on the current market value and that leads to quite a bit of liquid profit. Yes, they pay a low APR interest on the loan, but the loan itself is tax free.
(Score: 2) by SemperOSS on Sunday April 07 2019, @12:45PM
It is mostly correct, only it becomes complicated through the fact that the capital gains may actually indirectly be realised before its time through lending. As an individual, you may take out a mortgage in your house to buy another house, which you rent out, using the rent to pay the mortgage (and then some). You then mortgage the new house to pay for another rental house in the same manner as the first. You can create a very long chain of mortgages this way, which could create a good income for you based on, in reality, mostly untaxed assets. It is obviously a gamble in some ways, but I know that some people in the UK have made a thriving business out of doing just this. After some years, as the mortgages are paid out, you will own the houses outright thus increasing your income as the repayments stop and you stop paying interest.
Housing is one way but Big Industry™ has even better ways, I am sure, as they have expensive lawyers and financial experts to optimise this beyond reason. So yes, I agree, stop the loopholes that makes this possible and find a sensible way to handle it all.
I don't need a signature to draw attention to myself.
Maybe I should add a sarcasm warning now and again?