Taxing Unrealized Gains Is An Insane Idea
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To investors,
The idea of taxing unrealized capital gains is floated every few years by politicians. It used to be ignored by any serious market participant, but the frequency of the suggestion has increased to the point where the ridiculous concept must be addressed.
The latest suggestion comes from Vice President Harris as part of her economic plan and tax proposal. I recently broke down other aspects of Harris’ plan, including things I agreed with and things I disagreed with. You can watch the conversation with Polina Pompliano here:
Let’s get back to the unrealized tax idea — this is not only an unworkable plan, but it would be dead-on-arrival for any politician who actually tried to implement the strategy.
Taxing unrealized gains in theory would mean Americans would owe taxes on the appreciation of their home every year. As politicians debase the dollar, home prices would rise and home owners would owe taxes on that price appreciation.
This would bankrupt the average family, especially since about 40% of citizens don’t have enough money for a $400 emergency payment. Families would not have the money to pay for the taxes.
In my opinion, the blanket taxing of unrealized gains is a horrible idea that is only put forward by people on either side of the aisle that want to prey on the fear of those who don’t understand economics or finance.
Thankfully, Vice President Harris is floating a slightly different idea — she wants to tax the unrealized gains of people with a net worth of $100 million or more. The affected people must also have at least 80% of their net worth in liquid assets (for example, a home or private company stock would not count). This would solve the problem I mentioned above for the average family, but it doesn’t make the idea of taxing unrealized gains a good idea.
The fear is that once an unrealized gains tax is implemented, even though it originally targets a small subset of people, it will quickly be normalized and expanded to cover a broader range of the population. The percentages can also be expanded quickly to make the tax more egregious.
It always surprises me that very few people know the origin story of federal income taxes — originally the tax was approved as a 1% income tax that only targeted the wealthiest 1% of people. That small group of people has been drastically increased under tax law, while the amount charged to individuals expanded from 1% to upwards of 50% in some states.
At one point, the highest marginal tax rate in the United States reached 94% during 1944 and 1945.
If income tax can be expanded, so can the unrealized capital gains tax.
Kamala Harris’ plan does not stop at unrealized capital gains. She is also supporting President Biden’s proposal to increase the capital gains tax rate to ~45%. This feels like another policy suggestion that sounds good on the campaign trail, but would have very little odds of actually passing.
The truth is that America’s tax treatment of citizens is already quite onerous. Rather than increasing revenue via taxation, the government would be better off trying to reduce the out-of-control spending.
Let’s balance the budget. Stop spending more than we make. Drive efficiency up and expenses down. This would require discipline and focus from bureaucrats, but it would be less of a burden on the citizenry.
The important thing for us to do as a nation is also the hardest. I just don’t know if we have the political will to follow the hard path, instead of boasting about empty campaign promises that have near 0% chance of passing.
Let me know what you all think. I’d love to learn anything I am missing in this analysis. What do you think both political candidates would do if they were in office? How should taxes be treated for unrealized gains and capital gains?
Hope you all have a great day. I’ll talk to everyone tomorrow.
-Anthony Pompliano
Founder & CEO, Professional Capital Management
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Polina Pompliano, Author of ‘Hidden Genius’ and Founder of The Profile, and Anthony Pompliano, CEO of Professional Capital Management, discuss the new economic plan from Kamala Harris, price gouging, housing, tax credits, Trump’s current crypto portfolio, Mark Spitznagel’s recession comments, and takeaways from Peter Thiel on Joe Rogan.
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Anthony Pompliano Evaluates Kamala Harris’ Economic Plan with Polina Pompliano
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To me, income taxes (including FICA) and capital gains taxes create exactly the wrong incentives. I wish that there were a way to make a National Sales Tax palatable. Take someone with $100k annual income plus dividends and capital gains - eliminate the FICA, income and capital gains taxes and he/she has ALOT more money each month. At that point, a National Sales tax on new goods and services only, paid by the seller, would become much more tolerable. Rebate every tax payer monthly with the tax on spending at the poverty level. This eliminates the regressive cost of such a tax.
Of course, dramatic cuts in government spending are also necessary. Need to eliminate entire departments and functions and dramatically cut payrolls and contractors.
Insane is that a (supposedly) billionaire pays $750 tax in a year. I hate taxes as much as the next man but we should all pay our FAIR share.
Insane is giving tax breaks to multi-millionaires and billionaires especially since about 40% of citizens don’t have enough money for a $400 emergency payment.
The world be all OK if we didn't have billionaires. After you have $999,999,999 the rest could just go to charity. You would be given a medal and award stating: "well done, you beat capitalism" but that's all you need.