Tax on Unrealized Gains?

It's a Bird, it's a Plane, it's Capital Flight!

The plan to annually tax unrealized gains is now being sold to the American people as part of President Biden’s Build Back Better agenda. Well, what exactly is an unrealized gain, you ask? Investopedia defines this as:

an increase in the value of an asset or investment that an investor holds but has not yet sold for cash, such as an open stock position.

Yep, that’s right — they want to tax a potential profit, before you have actually made that profit. The way the politicians sell this ridiculous idea is by feeding off the emotions and economic ignorance of the populace. Politicians lament the poor state of the economy by deflecting the blame onto the wealthy instead of onto their own disastrous economic policies. The political class is great at turning the people against each other to divert focus from the political class itself. They say this tax will only affect the extremely wealthy. They wouldn’t dare take your unrealized gains, only that of the big boys and girls, they say.

US Treasury Secretary, Janet Yellen, explained the plan to tax unrealized gains on CNN's State of the Union this Sunday, October 24th,

“What’s under consideration is a proposal … that would impose a tax on unrealized capital gains on liquid assets held by extremely wealthy individuals — billionaires. I wouldn’t call that a wealth tax.”

Yeah, I wouldn’t call that a wealth tax either. I would simply call that evil. Taxing wealth is already wrong and destructive (more on this later). But, now they want to tax the prospect of wealth.

“It would help get at capital gains which are an extraordinarily large part of the incomes of the wealthiest individuals and right now escape taxation until they’re realized.”

It’s never enough for the Vampires. They will suck you dry, all in the name of helping the common man with the inevitable outcome of hurting the common man.

Wealth Tax

Let’s look at the effects of a plain-Jane wealth tax. Do you think the wealthy will passively succumb to a wealth tax without trying to minimize it or avoid it all together? Put yourself in a wealthy shoe. The most logical response to a wealth tax is to move your wealth away from the hands of those that want to take it. This is known as capital flight. The wealthy will leave their country and take their businesses with them. This leads to widespread job loss and a general decline in the local standard of living.

France’s recent wealth tax abandonment should be a lesson learned. It led to an exodus of more than 60,000 millionaires between the years 2000 and 2016. Think of all the knock-on effects of this type of exodus. Ironically, it resulted in a loss of tax revenue when much of the taxable population disappeared. Not to mention the loss of associated businesses, employment, local community spending and investment. All of it went poof!

Even the Organization for Economic Co‐​operation and Development (OECD) — an organization committed to “fighting international tax evasion” — recognizes that wealth taxes dis-incentivize risk-taking, entrepreneurship, innovation, and harm long-term growth.

Ya think?!

Taxing Unrealized Gains

Now let’s think about the effects of a tax on unrealized gains. Imagine you own a stock, house, or retirement fund and the value of that asset increases over the year. Well, here comes ol’ Yellen at the end of the year calling to collect. So you pay the nice lady. But where do you get the money to pay her? Well maybe you have to sell that stock, house, or fund to satisfy the taxes. Or perhaps it comes out of your savings. You just witnessed the destruction of wealth.

Now let’s say the next year those same assets lose value and are now worth less than what you purchased them for in the first place. This is known as an unrealized loss. Well, what do you do now that you’re in the hole? You clench your butt-cheeks tight and hope the value goes back up. Otherwise, you cut your losses and sell what you can. But if this happens, do you think ol’ Yellen is going to give your money back? You know, the money you paid the previous year that was based on a fictitious profit? No, of course not. And if she does pay you back, it will be in devalued currency similar to the way the US government pays out Social Security “benefits.” Talk about kicking a man while he’s down!

A tax on unrealized gains would remove the incentive to participate in the market. This leads to capital flight.

When a politician speaks, your first instinct should always be one of cautioned skepticism. If they say this tax on unrealized gains will only affect the billionaire class, note that they said the same for the income tax. Raymond J. Keating reminds us,

“There were, of course, warnings about the dangers of a progressive tax structure. But people supported the income tax because it was originally meant to impose only very low tax rates on only the highest incomes. Proponents argued that the 16th amendment to the U.S. Constitution would force the so-called ‘robber barons’ to pay taxes. It was not supposed to provide a mechanism for Washington to reach into most Americans’ pockets.”

Sound familiar? If the American people allow this, it will lead to capital flight and the associated reduction of living standards for all. Taxing unrealized gains will also eventually find its way to the common folk. It will then crush the poor and middle class by making it increasingly difficult to own and maintain property. It will help expand and solidify the wealth gap that the tax proponents righteously claim to rail against.