In search of ways to pay for their massive spending bills that the Biden Administration also assures us somehow cost nothing, Nancy Pelosi and Janet Yellen have floated taxing income that people haven’t actually earned yet.
While currently people only have to pay taxes on the price appreciation of an asset when its sold, the Biden administration wants those on the top to have to pay tax on their unrealized gains too.
It cannot be emphasized enough that this is a tax on something that someone technically doesn’t have yet. If such a tax were implemented affecting everyone, it means that someone who purchased a $200,000 house that went up in value to $250,000 in a year therefore “earned” $50k and would have to pay tax on that as if it were cash income.
According to the New York Post:
President Bidenâs $2 trillion spending package continues to stall as senior Democrats are hoping to finalize a proposal on a new annual tax on billionairesâ unrealized capital gains, Democratic leadership has indicated.
âWe probably will have a wealth tax,â House Speaker Nancy Pelosi (D-Calif.) confirmed Sunday on CNN.
The proposal, which is being reviewed by Senate Finance Committee Chairman Ron Wyden (D-Ore.), would impose an annual tax on unrealized capital gains on liquid assets held by billionaires, Treasury Secretary Janet Yellen said.
âI wouldnât call that a wealth tax, but 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 theyâre realized,â Yellen said on CNN.
The proposal would likely only affect less than 1,000 of the nationâs wealthiest citizens, according to the Wall Street Journal.
Pelosi said she believes the tax plan could be introduced as early as Monday.
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As it’s proposed, such a tax would only affect roughly 1,000 Americans, but most forms of taxation that are for just “the rich” end up trickling down to lower brackets. When the income tax was established it affected fewer than 1% of the population, and they only paid 1% of net income.
There are some obvious questions about how the tax would handle capital losses. For instance, would this tax work in both directions, where if someone had an unrealized capital loss in a particular year, the government would be writing billionaires a check for the difference (which would be their loss multiplied by their tax rate)? That would be the most fair way of doing it, but politically speaking, sending checks to billionaires probably doesn’t have the best optics.
Or if not credited for losses, would individuals be able to carry the capital loss over to the next year to count against unrealized capital gains?
As for the amount of revenue such a plan could generate, according to Andrew Stuttaford, “There is no official revenue estimate yet, but a similar proposal targeted at a larger groupâthe top 0.1% of householdsâwould raise about $750 billion over a decade, according to a 2019 estimate from tax professors Lily Batchelder and David Kamin, who are now both senior Biden administration officials.”
The “$75 billion per year” estimate is a massive overestimate however, as there are 160,000 families, in the top 0.1%, while this unrealized capital gains tax would affect 1,000 individuals. In other words, based on the average family size, there could be more than 500 times as many people in the former group. Furthermore, some of the long term revenue raised would be offset by those forced to sell shares just to pay tax, which will reduce the rate at which their investments compound, in turn reducing capital gains tax the government collects when they eventually choose to sell (unless there are some changes to how realized capital gains would be taxed – but that too remains a mystery).
Matt Palumbo is the author of The Man Behind the Curtain: Inside the Secret Network of George Soros
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