Daniel J. Pilla writes about a new wealth tax from the Biden administration’s revenue proposals:
The “minimum income tax” is not really an income tax at all because it reaches well beyond the traditional definition of “income” as used in the tax code since 1913. This new tax will be imposed at the rate of 20 percent on all “taxable income and ordinary assets,” including unrealized capital gains. This amounts to an estate tax, but the Biden administration doesn’t have the patience to wait until you’re dead to assess it.
By taxing unrealized capital gains, the Biden administration intends to tax mere paper increases in asset value, even if those increases are not locked in by the sale of the asset. For example, suppose you own stock in XYZ Corp, which you purchased at $10 per share. Say the stock value increased to $12 per share. You then have a $2 per share “unrealized” capital gain. It’s unrealized because the gain is not locked in until you sell the stock. That is, you have no money — and hence no income — until the stock is sold.
Paper gains — and losses, for that matter — are a mere economic fantasy because, as we all know, stocks can either rise or crash at any time. The gain is simply not real until the asset is sold, and that is the point at which the gain is taxed. To tax unrealized gains would be to base our tax system on the arbitrary whims of the market that changes day by day — or, in many cases, minute by minute.
Read the whole thing here.