I will point out that most property taxes are based on the value of the asset - so this is a problem that has already been solved to some extent.
tecmo
…
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“Those lucky shareholders will later sell some stock to buy gold plated ekranoplans…”
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Learned another new word…
ciao
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Some places have annual wealth taxes and the world doesn’t end.
I’m not advocating taxing unrealized gains, merely pointing out that the arguments against it definitely don’t include that it can’t be done reasonably effectively.
They sure do. Here in New Jersey, they have a property tax. Property is considered wealth and they tax it based on the assessed value. They do not like to increase the tax rate (though they do sometimes), so they increase the assessed value. That value is somewhat related to what other properties have recently sold for. But for me, I bought my house and lot for about $40,000 and it is now assessed for about $350,000, so my taxes have gone up from about $800/year to about $6,500/year. But whatever else it is, it is a tax on unrealized gain.
The world has not yet ended, but since my income has not increased since I retired, I worry.
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What seemed like rich people unfairly avoiding taxes was, it turns out, just a delay in paying taxes.
Except when the assets are passed on intergenerationally, in which case the step-up basis makes it tax avoidance. So we can’t tax unrealized gains ‘cause … complicated, and we can’t tax inheritance at cost ‘cause “death tax”.
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“Those lucky shareholders will later sell some stock to buy gold plated ekranoplans…”
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Learned another new word…
It’s a reference to one Hubertus Bigend, a fictional character.
(very mild spoiler alert…)
Over the span of the trilogy he gradually develops the persona of a Bond villain, and buys one.
Though not, as I recall, gold plated.
Jim
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Except when the assets are passed on intergenerationally, in which case the step-up basis makes it tax avoidance. So we can’t tax unrealized gains ‘cause … complicated, and we can’t tax inheritance at cost ‘cause “death tax”.
This to me is the crux of the problem. We have an estate/gift tax to supposedly avoid passing massive wealth between generations without the US government taking a very sizable tax. If the tax is being paid, then I have no problem with the step-up in basis. But, the wealthy have found ways around the estate tax.
I’d recommend aggressive action to close those loopholes rather than creating a new wealth tax. And there are other tweaks to the income tax, capital gains and dividend taxes that would be easier to implement to level the playing field some, rather than a new wealth tax.
That said, while I seriously doubt this proposal can pass Congress, I wouldn’t be upset if it did, pending clarification of details.
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… can’t tax inheritance at cost ‘cause “death tax”.
That phrase is a wonderful piece of spin.
Agree or disagree, I remain in awe of whoever penned and promoted it.
I like to ask people if they believe in the merits of dynastic wealth:
a small perpetual set of families with all the rocks, passing the loot down through the generations along the their chromosomes.
Once upon a time there was a strong consensus in the US that this was a bad thing.
But that’s before the phrase “death tax” was circulating, so it doesn’t get much air time : )
My own personal suggestion: (not that anybody cares)
Skip the silly step-up thing, of course.
0% inheritance tax on money you inherit from your parents in general, but some huge percentage on whatever subset of that your parents inherited from THEIR parents. Up to 100% tax rate on that.
Why this suggestion?
There is a visceral desire to give to one’s children so they may prosper, which is why estate/inheritance tax is always a hard sell.
But grandkids? Meh. Whatever.
So you get rich families, and they have one generation of rich kids, but it’s hard to get many dynasties.
Unless every generation makes a fresh fortune above (and presumably using) the funding they get handed, which isn’t so bad.
Jim
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<<… can’t tax inheritance at cost ‘cause “death tax”.
That phrase is a wonderful piece of spin.
Agree or disagree, I remain in awe of whoever penned and promoted it.
A similar phrase is “death panel”:
https://en.wikipedia.org/wiki/Death_panel#:~:text=%22Death%2….
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Frank Luntz
Frank Luntz
Just read up on the guy.
He sounds skilled.
The Leni Riefenstahl of our generation!
: )
Jim
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What seemed like rich people unfairly avoiding taxes was, it turns out, just a delay in paying taxes.
=======
Except when the assets are passed on intergenerationally, in which case the step-up basis makes it tax avoidance. So we can’t tax unrealized gains ‘cause … complicated, and we can’t tax inheritance at cost ‘cause “death tax”.
I’m not familiar with the intricacies of the US tax code, but there is a distinction to be made between taxing inherited after-tax money and taxing capital gains on which there is still a tax obligation (a government tax-free loan that was being provided to the deceased individual.) If society decides that parents should be allowed to pass on their wealth to their children without any tax due, that is one thing. But if there is to be a step-up in the cost basis of the inheriting child, then it seems logical to me that the tax on all of the gain from the old basis to the new step-up basis should be paid.
For non-liquid holdings, this might sometimes cause the same problem for the inheritor as it would for the original owner. In that case, the inheriting party should have a choice: either immediately pay, from the estate, the capital gains tax that was owed by the parent, or pay it over a 5-10 years, as this new legislation is proposing, so that the inheriting party has some time to liquidate the asset. I agree that the exemption should not be able to be passed on indefinitely, but if it is taxation of inheritances that a is the problem, then that is what should be fixed, not capital gains for everyone else.
dtb
Biden plan RIP:
https://www.businessinsider.com/joe-manchin-biden-billionair…
The wealthiest Americans shouldn’t be taxed on “things you don’t have,” he said, per Bloomberg.
It may spell the end of the road for the White House’s latest plan.
Well, that was quick!
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Glad there is an independent thinker and voice of reason who will not cave to political peer pressure. Seems extremely out of line imo to tax unrealized gains and have government controlling corporate buybacks/ capital allocation.
The top 1% paid about $615 billion in U.S. federal income taxes in 2018, which accounted for about 40% of all federal income taxes paid. When will it ever be enough?! I fear the growing momentum of Sen. Warren and “capitalism is evil” crowd. Will be interesting to see what direction the populace goes in November.
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< The top 1% paid about $615 billion in U.S. federal income taxes in 2018, which accounted for about 40% of all federal income taxes paid. When will it ever be enough?!>
This is the reason frequently cited by the ROP against raising tax on the rich. Large percentage of the population didn’t pay tax because they had not earned enough, while the super rich has earned too much. It’s an indication of unfair wealth distribution, not unfair tax burden tilt against the rich. Why should a CEO on average earn over 300 times more than a worker? A few decades ago, the ratio is less than 10. Which one is the problem?
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< A few decades ago, the ratio is less than 10.>
Correction: in the 1960s, the ratio is about 21
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The top 1% paid about $615 billion in U.S. federal income taxes in 2018, which accounted for about 40% of all federal income taxes paid. When will it ever be enough?!
It will be enough when income shares of the bottom 60% of the population are back to the levels of the 1960s. I’m frickin’ tired of seeing my friends in their 20s-40s struggling just to be able to afford a room in a shared housing situation. Happy to pay considerably more taxes so long as others are doing the same for the general good of the country, and I’m nowhere near the 1% - just another beneficiary of being born at the right time in the right country with the right genes and education and parents to take advantage of it, like Warren.
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The top 1% paid about $615 billion in U.S. federal income taxes in 2018, which accounted for about 40% of all federal income taxes paid. When will it ever be enough?!
So the government takes in about a trillion dollars in income tax. And it spent over three trillion in 2020. I understand it was about the same in 2021. So nothing will ever be enough until we reduce unnecessary expenditures. Apparently, we are even borrowing to pay the interest on the national debt. I.e., we are a third-world country as far as our economy is concerned.
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Hard for me to see this as entirely workable in any respect.
The proposed tax is essentially a requirement that what corporations now carry on their books as “deferred income taxes” be at least partially paid off each year.
If companies have actually been tracking their deferred taxes, this seems pretty much like proof of workability.
Further, in terms of generating cash to make the payments, the cap on each year’s payment against deferred taxes is the amount by which your tax on your actual income falls below 20% of your actual income. So if you keep your appreciated assets and only realize $100,000 in cash to buy mac and cheese and used clothing and cars and stuff, and you pay $10,000 regular federal income tax on your $100,000, you will have to pay an additional $10,000 federal income tax which would be credited to your deferred income tax.
It seems way simpler to work with than stuff like AMT and deductions that vanish gradually as income rises.
Be clear, I don’t know if I like this tax, but it is certainly on the easier to understand side and easier to implement and track side.
As to having to value your 1985 K-car each year, there are probably a lot of assets that just by law don’t get included in this calculation, just as there are now. Currently, if you bought your k-car for $6,000 and sell it in 2022 for $100, you don’t get to book a $5900 capital loss against your stock winnings, presumably whatever simple mechanism keeps your K-car out off your schedule D now will continue to work in the future.
R:
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"…until we reduce unnecessary expenditures.
What is unnecessary?
Benchmark data to assess one’s status:
https://dqydj.com/average-median-top-net-worth-percentiles-b…
https://economics.princeton.edu/working-papers/top-wealth-in…
The Princeton research is an interesting read.
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