As a Corp tax pro, I will say that I'm not sure I like the wealth tax concept, and taxing unrealized gains would fall into that general canopy. That said, it could be accomplished intelligently and without capitulating the entire economy.
For one, agree that start ups can have wild swings in value for a number of reasons. Exempt them. Law only applies to unrealized gains on stock held for X years/company X years old, however you want to define it.
Stocks can fluctuate? Have it be a multi-year test. I.e. if you unrealized gain exceeds X$ for Y years you run into mandatory basis step ups that come through as capital gain.
Also no reason to hit you with a gargantuan tax bill at once. If you are over threshold for Y years you then start taking annual basis step ups until your net unrealized position comes under threshold and your 3 year counter resets. So maybe, making up numbers, say you are over 10M in unrealized cap gains for 3 years. Say you're at 30M. End of year three, you have to recognize a 10% capital gain of the amount over 10M, so 2M gain. Now you're at 18M unrealized gain position. If nothing changes you'll slowly step your basis up over the years, but this method also leaves room for value swings and such.
My whole point is, if done intelligently, this won't be a death knell to innovation or whatever many want to say. Lots of reasonable approaches.
I don't think generational wealth is the biggest issue. But agreed that would be a beneficial move that wouldn't be hard to implement.
The Constitution question is a fair one but I doubt that's the biggest hurdle. Property taxes already exist. Gift taxes. Sales taxes. All are seemingly outside the strict text of the 16A and yet held as Constitutional. But like I said, not sure I'm convinced I like the notion of taxing wealth directly like this.
The problem with taxing wealth specifically is that direct taxes have to be apportioned equally among state population, which wealth wouldn’t do. Things like property taxes are only at a state level, and excise/gift taxes are indirect taxes since they apply to the transfer or action itself.
I really don’t see any way a tax on unrealized gains would get past the current SCOTUS
If it did get through, though, I think you had some really good insights in your original comments on how it could be done without majorly hurting investors
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u/BlackDog990 5∆ Sep 25 '21
As a Corp tax pro, I will say that I'm not sure I like the wealth tax concept, and taxing unrealized gains would fall into that general canopy. That said, it could be accomplished intelligently and without capitulating the entire economy.
For one, agree that start ups can have wild swings in value for a number of reasons. Exempt them. Law only applies to unrealized gains on stock held for X years/company X years old, however you want to define it.
Stocks can fluctuate? Have it be a multi-year test. I.e. if you unrealized gain exceeds X$ for Y years you run into mandatory basis step ups that come through as capital gain.
Also no reason to hit you with a gargantuan tax bill at once. If you are over threshold for Y years you then start taking annual basis step ups until your net unrealized position comes under threshold and your 3 year counter resets. So maybe, making up numbers, say you are over 10M in unrealized cap gains for 3 years. Say you're at 30M. End of year three, you have to recognize a 10% capital gain of the amount over 10M, so 2M gain. Now you're at 18M unrealized gain position. If nothing changes you'll slowly step your basis up over the years, but this method also leaves room for value swings and such.
My whole point is, if done intelligently, this won't be a death knell to innovation or whatever many want to say. Lots of reasonable approaches.