Oddbean

😂 Even worse: “The value of your stocks went up last year. You owe us tax on those gains.” “Yea but they’re all down this year. I’d have to sell half of them just to pay that tax.” Now imagine millions of people having to do this, and how many companies would tank and layoffs would result from it.

There's a timing issue though. Taxes are assessed on previous year but your stock value is market price. If imagine it's April 2025... your stocks appreciated crazy high in 2024 so u owe a huge amount of unrealized gains tax. But right now it's April 2025 and stocks tanked in February. You now have to sell at a loss to pay your unrealized gains taxes.

This won't eat the rich at all. It will only lock out the poor from participating in investments. An unrealized gains tax is effectively a prepayment on your eventual realized gains. It'll make stock investments unattainable for the cash poor. If you're taxed on unrealized gains you have to pay tax on earnings you haven't actually earned (and may never actually earn). The cash poor will not be able to pay this tax and therefore cannot invest. The rich can pay it as they have liquid cash on the sidelines. Taxing unrealized gains ultimately becomes a timing issue. Once a security is realized, you end up at the same net amount of tax paid (you pay more upfront and less upon disposition). A tax on unrealized gains is effectively a prepayment on your realized gains. The rich who can afford to prepay will not pay any additional taxes net. This will not eat the rich but simply lock out the poor. This gets crazier because if the unrealized gain turns into unrealized loss later down the line, how is that handled? Is the government going to provide a rebate/return on the difference? Tax basis is already a nightmare to deal with as-is, this is just another massive layer of complication to add on top. Just on data volume alone, this will likely add, on avg 5-10x more transactions to process. And thats not taking into consideration the significantly more complicated rules/exceptions that will need to be put in place and the level of additional rollforward tracking required for the lifetime of every position. This will become an absolute logistical nightmare from a tax accounting perspective.

Absolutely. It's added complication for no real gain for anyone. The rich get taxed the same. The poor get priced out. The accountants have to work more for the same cost. The government arguably gets less tax money because it will reduce total investments in the market. Literally no one gains from this.

The idea is fully consistent with the debt-based monetary system: You consume tomorrow’s earnings now, so why not tax gains before they actually materialize? Slaughter the chicken before it lays eggs! No better: eat the eggs before they even exist!