This is a frightening idea -- being forced to pay taxes on speculative income you haven't actually earned yet will destroy small business and will inevitably be weaponized against anyone who owns any substantial assets, including residential property.
If this passes, I hope the courts strike it down as unconstitutional on the grounds that unrealized gains don't qualify as "income" under the 16th amendment.
The Reddit /accounts were talking about this earlier this week and I think most of them had a pretty reasonable take.
1. If one uses an asset as collateral for a loan (be it stock or whatever else), for tax purposes treat that asset as sold, then immediately repurchased at the same price.
2. From there all of the usual tax laws can apply.
So in theory this should get at the core of the actual problem, while avoiding at lot of the messiness of taxing un-realized gains.
It's not perfect, but I think it helps align incentives well. Whoever is lending the money probably wants to know the value of the collateral. Lender and borrower are now both incentivized to come up with the real value at the time of the loan.
So small business can't take out loans unless they can realize and be taxed on the full valuation of their company immediately? As much as I can appreciate the goal, this is absurd.
This is not about businesses taking out businesses loans. It’s about the owners of businesses using their shares as collateral for loans.
Most small business owners probably can’t even do this, because banks won’t accept their shares as collateral. So in a sense you could say this would even the playing field between big and small business.
Because income tax started as only targeting people making $3,000 a year, which was the top ~40% of earners in 1913. Once the door to a new government power is unlocked, it never closes it only gets more open.
> Once the door to a new government power is unlocked, it never closes it only gets more open.
I don't think "slippery slope" is a reasonable defense here, especially with the situation you're using as an example. The top 40% of earners is a lot of people, and pretty close to the number of people that pay positive income taxes today (50% of earners pay 97% of taxes). The slope you're using as an example doesn't look very slippery, especially given that 100+ years of the US changing completely has happened in the meantime.
Slippery slope arguments are absolutely legitimate when (a) dealing with policy proposals in relation to difference from a perceived "normal" situation, (b) discussing issues in which factions that wish to push the status quo toward an extreme endpoint manifestly exist and exert influence, and/or (c) there's a demonstrable history of incremental expansion of similar policies' scope and effects in evidence.
The unsaid half of the example, which I assumed was understood for people on HN, was that income tax was initially presented as a small tax on the very well off which now impacts almost every earning American.
Judging by the timeline, it seemed like initial low rates had more to do with it being a new system, and less to do with some kind if "we will only do this to the rich" promise.
Also, they tried implementing income taxes previously, had it struck down by supreme court, then all the states got together to pass an amendment to allow income taxes. So, it was a pretty strongly supported change.
Honestly, I can get on board with "government tends to only grow in scope" point of view, I just don't think income taxes illustrate that point at all.
That’s playing all sorts of games with the numbers, from 1917 the $2K threshold (50k in 2024) was at 2% tax rate with the top rate being 15% at $2m pa of 1917 dollars so ~$50m pa today.
1) Effective taxes aren't much different today. A married couple with no kids will pay < 5% on 50k. FICA is what makes it higher, so not exactly apples to apples.
2) You're choosing 1917, pre changes, to paint an inaccurate picture. Top rate went from 15% to 67% that year, and 77% the year after. Almost double today's top rate.
What happened was, we introduced a revenue system, and have changed it over time, often dramatically, as the country's needs have changed, both raising and lowering rates. We haven't gone down some crazy spiral of ever increasing tax rates. If anything, the tax situation for the rich has gotten better over time, not worse.
I choose 1917 because it's both old - the point of this exercise - and right after a lowering of the band $3K to $2K and increased taxes in response to WWI. WWI was quite a dramatic event.
I'm not sure what you're arguing - that it changed dramatically or that it has not changed dramatically. If you're arguing it has changed dramatically then I guess we are in agreement.
You should also note that 1917 was prior to the introduction of sales taxes (1921) and social security taxes (1937). Looking at only federal income tax paints an rather incomplete picture when looking at total tax burdens.
"A married couple with no kids will pay < 5% on 50k" I assume they're dual filing for the 50K so 25K on average? The lower %16 percent of the population. A weird number to pick.
> I'm not sure what you're arguing - that it changed dramatically or that it has not changed dramatically.
Im arguing that the original comment, that income taxes weren't originally intended to be what they are today, or it was some kind of bate and switch, or slow bleeding, that led us to today. That was my read of thread parent anyway.
> You should also note that 1917 was prior to the introduction of sales taxes (1921) and social security taxes (1937). Looking at only federal income tax paints an rather incomplete picture when looking at total tax burdens.
We aren't arguing about total tax burden, we are arguing that a new kind of tax will/won't necessarily be abused and changed post introduction. Those three tax vectors prove that they won't be if anything, as they haven't changed much since introduction either.
>A married couple with no kids will pay < 5% on 50k" I assume they're dual filing for the 50K so 25K on average? The lower %16 percent of the population.
1) Most households were single income in 1917.
2) 50k was inflation adjusted equivalent to numbers that I was responding to. I didn't pick it at random, I chose it to show things hadn't changed much.
I don't think "everyone" is talking about small businesses. Only people with an axe to grind against the legislation, who trot out "Small Business" to play the sympathetic victim.
Yes. It's very common to collateralize a loan with the total assets of the company, and often with personal guarantee on top of this for small LLCs without significant assets or credit history.
I do not see in the article where it says the loan has to be used for personal expenses. In fact from what I can tell it just says unrealized gains will be taxed regardless of whether a loan is taken out or not. The loan example is just used as a justification.
In response to "If one uses an asset as collateral for a loan" you wrote "So small business can't take out loans unless they can realize and be taxed on the full valuation of their company".
The comment was about using assets as collateral for loans. Your response was about something else - or maybe it was not about anything, I'm not sure.
A company can also get asset-backed loans using as collateral something the company owns - or it can get a completely different kind of loan where there is no specific asset used as guarantee.
Maybe it’s just a marketing problem then and it should be called asset collateral tax rather than unrealized gain tax, which on the face of it sounds kind of stupid.
How does this interact with something trivial like remortgaging a house?
Say I bought a house for 100k, cash. Now it's worth 200k. I want to take another 50k mortgage on it. Do I realize cap gains on 25% of my house, i.e. an increase of value on 25k to 50k, and then I'm liable for cap gains on 25k? At 20% say, that's 5k tax. Unpleasant for sure, but doesn't seem out of proportion.
Yeah, I agree with this take. I think making an issue of unrealized gains isn't the real story here. Using unrealized gains/assets as collateral is the way the ultra-wealthy avoid large swaths of income tax.
I see two reasonable paths forward for taxing using assets as collateral:
1. Treat it as a sale and repurchase (as you described) and transform capital gains into a progressive system
2. Treat the sale as earning income for purposes of using the traditional income tax brackets.
Either way, you don't get into a weird speculative tax gray area. Rather it's when the ultra wealthy want cash-on-hand that they incur some kind of income tax penalty. Maybe even put in a reasonable exemption ($25-100k/year) that doesn't trigger tax so that middle class households aren't hamstrung by this.
>...Using unrealized gains/assets as collateral is the way the ultra-wealthy avoid large swaths of income tax.
There are many web sites that claim this, but are there any actual reliable stats on how many lifetime loans are being given out? It is common to make short terms based on using stocks, etc as collateral. But how common is it to have a lender be ok with either deferring interest for decades until the person dies or continually giving new loans out to cover the interest (on paper at least)? Doing a quick search, I have not found one stat on how many lifetime loans like this are actually being done. There is a treasury department page claiming that about 160 billion dollars in unrealized gains are not being taxed, but that isn't talking about stock being used as collateral, that is talking about simply the value of assets increasing - that is entirely different. (If unrealized nominal gains should be taxed, should decreases in the value of assets lead to a tax refund?)
According to this:
https://finance.yahoo.com/news/jeff-bezos-sell-5-billion-185...
Bezos has sold around $13.4 billion in stock in 2024. If he could easily avoid millions (maybe billions) of dollars of capital gains tax by this one simple technique, why wouldn't he have?
One of the reasons I think politics is ok with income tax being where it is, is that the wealthy can currently avoid most of it. The wealthy can bring their money to bear to influence politics again to both broaden the scope so that the tax is more universally disliked and to create another carve out for themselves. Or at the very least situate themselves to benefit from government largess so that new taxes funding new spending is a net benefit for them.
My main concern is that it puts the government in a position to greatly benefit from inflation, even more so than it does now, and inflation will be the hidden tax that hurts the poor.
My understanding of the proposal is that households worth more than $100 million would pay an annual minimum tax worth 25% of their combined income and unrealized capital gains. This doesn’t seem insane? In particular, that’s a hell of a residential property
My city passed a "mansion tax" for people who own multimillion dollar homes. However the threshold for where the extra tax kicks in isn't adjusted for inflation or the top X percentile of most expensive homes. So we're on track for the average single family homeowner to be paying the "mansion tax" in another decade or so. It's already hitting some multifamily buildings.
Also reminds me of AMT. When it was originally created, one of the selling points was that it would only impact 155 wealthy families, households who made the then-insane income of over $200k but paid very little in income taxes. By 2017, over 5 million households were paying AMT, particularly those in states with high SALT taxes where $200k/year doesn't afford as lavish of a lifestyle as it used to.
Fully agree. Every piece of legislation that mentions a dollar amount should be adjusted for inflation. That should be true for income thresholds all the way down to parking tickets.
With all these sorts of things where they promise it'll only affect subset X of people, and then in the future once its been passed it's then changed/extended to affect subset Y in addition, I wish someone would suggest some way to just add a clause in, something like "This law is only to target X subset and if anyone tries to change it to affect a different subset of people, or pass a new law that extends its scope to a different subset, all such laws are instantly made invalid and dropped from the books". Or something along those lines.
If they promise it'll only ever affect the "super rich", then encode that in the law and ensure us, by law, that's what it'll be. If they truly don't want to expand its scope further, then have a mechanism that enforces that.
(Of course, this is a separate issue from whether it's even moral to target subset X in the first place, which I won't get into).
Yes here's the actual proposal. I'm sure it's not coincidence that it's left out of the Forbes article
> The proposal would impose a minimum tax of 25 percent on total income, generally inclusive of
unrealized capital gains, for all taxpayers with wealth (that is, the difference obtained by
subtracting liabilities from assets) greater than $100 million.
> Minimum tax liability would be reduced to the extent that the sum of minimum tax liability and
uncredited prepayments exceeds two times the minimum tax rate times the amount by which the
taxpayer’s wealth exceeds $100 million. As a result, the minimum tax would be fully phased in
for all taxpayers with wealth greater than $200 million.
Imagine step 2 to realize the insanity. That household likely doesn't have disposable income that is greater than 25% of their unrealized cap gains, so what do they do?
1. Hope they can get a low interest loan to pay their taxes?
Or
2. Sell some assets. Think about what will happen to your 401k balance as wealthy people all over the US are forced to sell stocks. It will not be pretty.
I'm not talking about the economy failing. I'm talking prices. What do you think happens to asset prices when there are only sellers (everyone with wealth has to sell). You think poor people will have enough cash to keep prices up?
When Elon sold in his latest Tesla round the stock tanked 30% over a couple months. Repeat for Bezos, Gates, etc.
If there are only sellers and no buyers the market collapses entirely. Luckily though people buy and sell stock all the time and even if the entire OMB estimated revenue from the tax (about $500b) was funded by selling stocks, that would represent less than 1% of total market volume.
Also, a household worth $100M is not going to suddenly be starving come tax time. And, they'll know in advance how much they need to pay because they have a CPA or a private wealth manager at the bank who can just tell them and set aside the money for April.
Hahaha. You think the people in that arena don't re-invest every possible dollar for more growth as soon as it hits their pockets? Cash flow is king to be able to pay for continuing leverage.
A sudden tax bill and the end of acquiring new debt are when massive wealth unravels.
I think AMZN and TSLA dropping 10% or whatever because Bezos and Elon have to sell more shares could be feelsbadman but it is not very close to the end of the free market economy.
“In 1894, Democrats in Congress passed the Wilson-Gorman tariff, which imposed the first peacetime income tax. The rate was 2% on income over $4,000, which meant fewer than 10% of households would pay any. ($4,000 was 19.3 times the 1894 nominal GDP per capita of $207.23; the corresponding income in 2021 is $1.3M.)“
How else are you going to find evidence of a slow-moving phenomenon? Besides, has human nature changed in the last 150 years?
If the assertion is (for example) "taxation on the rich tends to end up including middle-class and maybe lower", why would an example from Rome or medieval Europe not be applicable?
Weirdly enough I actually had to write a college paper on the tax policy of the late Byzantine Empire. During the tenth and eleventh centuries, Roman land became increasingly consolidated under a few influential families, who used their influence to pay less taxes. This weakened the state and left it vulnerable to the fourth crusade and eventually the fall to the Turks.
Back to here, I don't think tax policy from the 1800s is especially relevant because the United States has gone through extensive reform with respect to monetary and economic policy since that time. The fed didn't exist and we were still on the gold standard. It's weird to use an obscure law nobody has every heard of to argue against taxing a class of wealthy Americans that are paying historically low tax rates.
This thread is about how taxes with small rates applied only to the rich have a historically documented tendency to grow in scope and rate, and that therefore it is legitimate for all potential taxpayers to worry about a new kind of tax, no matter how tightly scoped and low in rate in initial proposals
Because it is one of the key examples of how taxes trickle down.
Also, do you see those old tax rates? People love to make comparisons about how housing was affordable half a century ago, then check out the tax rates, that’s partly why.
We are at absurd tax rates and all because the government doesn’t make any effort to control their spending.
Rich individuals who are born into money will always find ways to escape these taxes, but your average person who built their wealth will not and in a decade when they hit the middle class, they will just contribute to extending the wealth gap.
Call me crazy but I don't exactly have a ton of sympathy for temporarily embarrassed millionaires. The statement that we somehow have absurd tax rates now is completely inconsistent with the reality that taxes have been trending down for decades, punctuated by tax cuts that were made in the last decade. If you're worried about government spending and government debt, and you probably should take a macroeconomics class and realize you shouldn't be, then you ought to be in favor of reforming our codes to ensure the rich are paying a fair rate given that they benefit hugely from being in a country with developed infrastructure, a highly educated workforce, and a military that ensures global stability and unmolested shipping.
Bringing up tax codes from before 1900 is just an absurd way to start a discussion about this because we've had over a century of development in monetary policy and taxation since then.
So it took 130 years to go from 10% to 70% - given this is starting around .1% we will have like 400 years before it is ubiquitous? I am willing to take that risk.
If you could rate policies by how good they are, you'd could get a couple categories: clearly bad policies, these don't get implemented. clearly good policies, these get implemented broadly. things in the middle, these get debated a lot and some get implemented in very limited scope and then we learn if they should be expanded or not. The ones that do get expanded are going to have a lot more visibility and presence in the general consciousness than those that don't. There's also a lot of factors that tend to discourage implementation and it's very common that the perceived value of policies increases significantly after they've been adopted.
There's basically just a lot of things going on such that the natural result is that the scope of policies increases over time. And that's a good thing.
Sure, it's possible the law will be written in such a short-sighted way that it won't take inflation into account in any way.
It's also possible that in the future, another law will be passed that expands this law to affect people who could not reasonably be considered "very wealthy".
But if the former happens, that's fixable, and also unlikely to affect ordinary people due to simple inflation for a good long time, so there's plenty of opportunity to fix it. And if the latter happens, that's when you need to fight it.
There is a very real, very serious problem with income and wealth inequality in this country. Study after study shows that the inequality is real, and that it is causing a raft of issues, from psychological to economic to political. It's really hard, at this point, to take seriously anyone who says we shouldn't try to fix that by reducing the inequality, especially if their only argument is, "Watch out! If the government comes for their billions, soon they'll come for your billions! Er, I mean millions! Er, I mean thousands!"
> Sure, it's possible the law will be written in such a short-sighted way that it won't take inflation into account in any way.
And when it's you that's likely affected where such short-sightedness to happen, and when there are multiple examples of such short-sightedness just in these comments already, I think that is a worry. Also, since the party proposing the law tends to have socialist and postmodern-Marxist leanings, there's even a potential motive for some less honest short-sightedness. Because, after all, inequality is a serious issue.
It's a story. But it is also an empirical question many people will be able to answer for themselves from abundant historical evidence no? Maybe people don't care about the data if they've never had difficulty paying their tax bill. I'm in the other camp, as are many working class people.
Sorry, could you restate your claim? It seemed as though you claimed that "many working people" have historically been taxed on their unrealized capital gains. After I fell off my stool laughing I wasn't sure you meant it.
My claim is that it's an empirical question whether tax policy drifts over time in such a way that more people pay more. Seems foolosh to argue over what can be easily quantified.
In terms of my statement about many working people having trouble paying taxes, that too is quantifiable. As someone with many working poor friends I could offer anecdotes where people have to sell a car or do something drastic to pay their tax bill. The reason is that many working poor don't have normal middle class jobs where a portion of their salary is set aside for taxes. Everyone should pay taxes, even poor folks who don't have bank accounts or steady employment. My point is that these people hate taxes as much, likely more, than jeff bezos does. The people who seem to like taxes and tax increases (you may be one), tend to be upper middle class professionals who have never had to scramble to pay them for fear of prison or wage garnishment.
https://fred.stlouisfed.org/series/FYFRGDA188S - it seems like taxes don’t really “drift” so much as find an equilibrium and stay roughly there. I think the burden is on you to explain how this law would break us out of the current ~17% status quo.
From the article: "A tax on unrealized gains will need to be carefully calibrated and accounted for, targeted first towards high net worth individuals and liquid assets"
What does the word "first" in that sentence imply?
unrealized gains in property are already taxed by "property taxes".
If I buy a $1000 dollars worth of stock, and use that to secure a $1000 loan. ok, fine, I don't see why that should be taxed at all. But if the lender believes the stock is worth lots more, and offers a $2000 secured loan, something's going on there.
I don't think it should be as much as actual capital gains, because it's not actually turned into cold hard cash. And there's still risk of the underlying asset price falling.
But if the lender says my $1000 is worth $2000, I'm getting some benefit of the higher value. And I can see why that would be taxed. I'd really want to see the details. probably that tax should be deducted from capital gains when finally realized.
The purpose of this isn't for someone who buys $1k of stock then uses that as collateral for a $1k loan.
It's for someone who has zero traditional income, but owns stocks worth $100M+, and uses, say, $2M of that as collateral for a $2M loan so that they can have liquid assets.
I used small numbers to focus on the mechanism. I think the point is, if I purchased the sock for $100M+, that loan shouldn't be taxed. If I purchased that asset for $1M, and take a $2M loan, only the second M would be, in some sense, realized, and subject to the tax.
No.
Let's say I have $100 million. Every year, for 50 years, I get a $2 million loan against only $2 million of my asset. The loans keep rotating and keep going.
At the end of 50 years, I die. When I die, the assets go to my estate AND (and this is important) my assets base value is rebased to current values.
My heirs sell some assets to pay off the loans. BUT the assets have been rebased to current value, so there is no tax due (since sell value is the same as base value).
Let me repeat.
My estate pays NO TAXES at all since the assets were rebased.
Often it's repaid with another loan. If you have 100m in stock assets to leverage, you could literally go your entire life without needing to ever actually sell the stock to pay the rolling loans, even if your 100m of stock never appreciated in value, which is unlikely- in reality that stock that's collateral is still making you even more money.
may be it shouldnt be the same as capital gains, but it should be related. like maybe it should be (capital gains tax rate - interest rate of loan) else it will simply be a way to continue to pay less taxes and still have your income as cash on hand
Yeah, it makes a lot more sense to treat liquidity achieved by collateralizing capital gains on assets as realized gains, and tax it as income, then to allow for blanket taxation of unrealized gains.
But I'm still not sure what problem any of this is trying to solve in the first place. Does anyone seriously think this would solve the federal budget deficit?
Taxes aren't really for budgetary matters. A government can simply print money for that. Taxes are mostly for:
1. Data collection.
2. Behaviour incentivization/disincentivization.
3. An avenue for money destruction.
With inflation concerns still lingering, #3 is on minds. We also are coming to recognize that we don't actually have a great handle on how much wealth is out there, which is no doubt why this seeks to tax the wealth and not the associated income. But I suspect the greatest driver is that the general public are increasingly coming to think that the rich are not behaving in desirable ways and want to change their behaviour, with this being an appeal to that.
On the All-in Podcast they said it was only on unrealized gains over $100m. This is meant to target the Bezos and Musks of the world who can avoid taxes by borrowing against unrealized gains.
If this passes, I hope the courts strike it down as unconstitutional on the grounds that unrealized gains don't qualify as "income" under the 16th amendment.