# Progressive proposal for wealth taxes--why not just do this? **URL:** \ **Category:** In My Humble Opinion\ **Created:** [November 4, 2021, 8:29pm UTC](https://boards.straightdope.com/t/progressive-proposal-for-wealth-taxes-why-not-just-do-this/953812 "2021-11-04T20:29:48Z")\ **Posts on this page:** 20\ **Page:** 1
**Author:** ![CookingWithGas](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/cookingwithgas/32/485_2.png) [@CookingWithGas](https://boards.straightdope.com/u/CookingWithGas)\ **Post date:** [November 4, 2021, 8:29pm UTC](https://boards.straightdope.com/t/progressive-proposal-for-wealth-taxes-why-not-just-do-this/953812/1 "2021-11-04T20:29:48Z")
The Democratic progressives have proposed a wealth tax (taxing net assets, not income), as well as other aggressive measures to get the very wealthy to “pay their fair share.” I’m all for fairness, but it seems to me that there are a couple of simpler and possibly more popular ways to generate more government revenue: 1. Close the tax gap. There is currently at _least_ **[$381 billion per year](https://www.irs.gov/newsroom/the-tax-gap)** that is owed under current tax code but not collected. A relatively small increase in funding of the IRS would leverage their ability to collect this. 2. Tax capital gains as ordinary income. The argument for a lower capital gains rate is to simulate investment, but most investment money is secondary rather than going directly to fund growth and development. That is, if I bought Apple stock 20 years ago from some other shareholder, then sold it for a huge profit today, my investment didn’t help Apple at all. My money did not directly stimulate anything except investor wealth. This approach might be harder for the small investor to stomach, since now we depend on our IRAs and 401(k) plans to fund retirement. The current rate could be retained for gains up to some number like $100K a year. 3. Remove the cost basis step-up for certain capital gains on inheritance taxes. I would not support this for illiquid assets like real estate, but I would for securities holdings. My understanding is that many of the uber-wealthy generate cash flow by borrowing against their holdings so they do not realize capital gains. I am not very well-versed in how this works, but I am opposed to taxing assets just because their value goes up on paper (to be clear: I am not a billionaire). If you are a Ford executive in 1998 when the stock peaks, and most of your wealth is in Ford stock, will the government give you money back when the stock bottoms out in 2008? Also, I suspect that if you’re that wealthy, you have a team of lawyers and compliant employers who will all find the loopholes if such a tax were to go into effect. As I said, I am all for fairness. Even Warren Buffett said that his effective tax rate was lower than his secretary’s. But some of the far-left politicians give off this “fuck the rich” kind of vibe that I don’t think is helping. ---
**Author:** ![Do\_Not\_Taunt](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/do_not_taunt/32/2968_2.png) [@Do\_Not\_Taunt](https://boards.straightdope.com/u/Do_Not_Taunt)\ **Post date:** [November 4, 2021, 9:36pm UTC](https://boards.straightdope.com/t/progressive-proposal-for-wealth-taxes-why-not-just-do-this/953812/2 "2021-11-04T21:36:30Z")
The tax changes to the Democrats’ infra bill seem to be even more dynamic than the spending changing. I’ve seen #1 and #3 bandied about as possibilities to increase revenue. For #1, the risk is that greater enforcement eventually means that regular people get snared up in IRS audits. Even if they don’t eventually have to pay additional tax, it can be an enormous headache that drives down the popularity of enforcement. I’m not sure how much of that \>= $381B gap can be easily closed. For #2, I would generally be in favor of this, especially with a carve out for the first $x of gains at the lower rate. That said, I wouldn’t undersell the value of providing a liquid, secondary market for securities. Your purchase of stock might not have put dollars directly into Apple’s pocket for investment, but it makes it possible for early stage investors to exit. Without that - or something similar - early stage investors wouldn’t exist. Also, it allows Apple to issue new shares to employees as part of their compensation. For #3, this seems like a no-brainer, even for real estate. The only argument I can think of against it is that it complicates bookkeeping - imagine having to know basis prices for something grandfather bought - but that’s mitigatable for sure. ---
**Author:** ![Do\_Not\_Taunt](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/do_not_taunt/32/2968_2.png) [@Do\_Not\_Taunt](https://boards.straightdope.com/u/Do_Not_Taunt)\ **Post date:** [November 4, 2021, 9:39pm UTC](https://boards.straightdope.com/t/progressive-proposal-for-wealth-taxes-why-not-just-do-this/953812/3 "2021-11-04T21:39:05Z")
> [@CookingWithGas](#): > > I am opposed to taxing assets just because their value goes up on paper (to be clear: I am not a billionaire). If you are a Ford executive in 1998 when the stock peaks, and most of your wealth is in Ford stock, will the government give you money back when the stock bottoms out in 2008? Oh, and for this part: I agree. Taxing unrealized gains _as gains_ is hugely problematic. Taxing them as wealth at an Elizabeth Warren-style 2% rate with a $50MM exclusion seems totally reasonable. ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [November 4, 2021, 9:45pm UTC](https://boards.straightdope.com/t/progressive-proposal-for-wealth-taxes-why-not-just-do-this/953812/4 "2021-11-04T21:45:56Z")
> [@Do\_Not\_Taunt](#): > > Oh, and for this part: I agree. Taxing unrealized gains _as gains_ is hugely problematic. Taxing them as wealth at an Elizabeth Warren-style 2% rate with a $50MM exclusion seems totally reasonable. The difference being, what? That if the unrealized gains are lost the government doesn’t have to pay back the taxes paid? How can you tax unrealized gains as ‘wealth’ since they are, you know, unrealized? ---
**Author:** ![Do\_Not\_Taunt](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/do_not_taunt/32/2968_2.png) [@Do\_Not\_Taunt](https://boards.straightdope.com/u/Do_Not_Taunt)\ **Post date:** [November 4, 2021, 9:50pm UTC](https://boards.straightdope.com/t/progressive-proposal-for-wealth-taxes-why-not-just-do-this/953812/5 "2021-11-04T21:50:22Z")
Because they’re still wealth, and easily valued at that, assuming an asset with a liquid market. Two major difference: taxing them as gains is an accounting mess - what happens when they go down in value, and then back up again? Secondly, many of the gains will be one-time, with future taxes only capturing future appreciation. Revenue from the tax will largely disappear during bear markets. On the other hand, the wealth tax will create relatively stable, recurring revenue. ---
**Author:** ![CookingWithGas](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/cookingwithgas/32/485_2.png) [@CookingWithGas](https://boards.straightdope.com/u/CookingWithGas)\ **Post date:** [November 4, 2021, 10:29pm UTC](https://boards.straightdope.com/t/progressive-proposal-for-wealth-taxes-why-not-just-do-this/953812/6 "2021-11-04T22:29:30Z")
> [@Do\_Not\_Taunt](#): > > Oh, and for this part: I agree. Taxing unrealized gains _as gains_ is hugely problematic. Taxing them as wealth at an Elizabeth Warren-style 2% rate with a $50MM exclusion seems totally reasonable. The proposal is to tax them as wealth, but this is what I disagree with, because it’s only on paper. Yeah, Bezos is worth a lot but if he ever tried to sell all his Amazon stock just that sale would cause the stock to plummet. He is filthy rich on paper but he could not go out and buy $175 B worth of anything. Same thing with Musk, probably even more so since Tesla stock is probably overvalued. I don’t think anyone has proposed taxing them as gains, although I don’t know everything that everybody has proposed. ---
**Author:** ![iamthewalrus\_3](https://avatars.discourse-cdn.com/v4/letter/i/258eb7/32.png) [@iamthewalrus\_3](https://boards.straightdope.com/u/iamthewalrus_3)\ **Post date:** [November 4, 2021, 10:37pm UTC](https://boards.straightdope.com/t/progressive-proposal-for-wealth-taxes-why-not-just-do-this/953812/7 "2021-11-04T22:37:05Z")
> [@CookingWithGas](#): > > most investment money is secondary rather than going directly to fund growth and development. That is, if I bought Apple stock 20 years ago from some other shareholder, then sold it for a huge profit today, my investment didn’t help Apple at all. Focusing on first-order effects and ignoring higher-order effects is not correct. The fact that there’s a liquid market in stock is a big reason that it’s so easy for companies to raise money in the first place. _Someone_ originally bought that share from Apple, and a big part of the reason that they did is that they knew they could sell it to someone else. That said, I generally agree that your suggestions are good ones, and better than the proposed wealth tax. Part of the reason they’re not doing so is that they seem to be holding themselves to the standard that if any person who makes less than $400k a year ends up paying more in taxes it’s a betrayal of “no middle class tax increases”. Which is a bonkers standard, but it’s why you get things like tax proposals that only apply to people with $10m+ annual income and $1b+ net worth. ---
**Author:** ![XT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/xt/32/456_2.png) [@XT](https://boards.straightdope.com/u/XT)\ **Post date:** [November 4, 2021, 10:45pm UTC](https://boards.straightdope.com/t/progressive-proposal-for-wealth-taxes-why-not-just-do-this/953812/8 "2021-11-04T22:45:03Z")
> [@CookingWithGas](#): > > The proposal is to tax them as wealth, but this is what I disagree with, because it’s only on paper. Yeah, Bezos is worth a lot but if he ever tried to sell all his Amazon stock just that sale would cause the stock to plummet. He is filthy rich on paper but he could not go out and buy $175 B worth of anything. Same thing with Musk, probably even more so since Tesla stock is probably overvalued. > > I don’t think anyone has proposed taxing them as gains, although I don’t know everything that everybody has proposed. So, I’m far from even being able to follow you and DNT on much of this, but what about if they use the stocks as securities for loans, which I think is how the real wealthy leverage their assets while keeping their tax profile at a minimum. From what I can follow here, it seems problematic to try and tax this stuff directly (as Sam said, it’s unrealized until they, well, realize it), but if they use it to secure loans or other things, tax that…somehow. You know, 1. Identify the activity 2… 3. Profit! Sorry, that’s the only thing I could think of and it’s probably fairly silly, but it is an interesting topic so wanted to try and follow along. ---
**Author:** ![CookingWithGas](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/cookingwithgas/32/485_2.png) [@CookingWithGas](https://boards.straightdope.com/u/CookingWithGas)\ **Post date:** [November 4, 2021, 10:45pm UTC](https://boards.straightdope.com/t/progressive-proposal-for-wealth-taxes-why-not-just-do-this/953812/9 "2021-11-04T22:45:36Z")
> [@iamthewalrus\_3](#): > > _Someone_ originally bought that share from Apple, and a big part of the reason that they did is that they knew they could sell it to someone else. Yes, that’s true, but increasing the tax rate on capital gains does not mean that they could not sell it, or discourage them from buying it. It just means that their net gain would be lower. (That might be a little different if our top marginal rate went back to up 90% again.) ---
**Author:** ![Do\_Not\_Taunt](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/do_not_taunt/32/2968_2.png) [@Do\_Not\_Taunt](https://boards.straightdope.com/u/Do_Not_Taunt)\ **Post date:** [November 4, 2021, 10:46pm UTC](https://boards.straightdope.com/t/progressive-proposal-for-wealth-taxes-why-not-just-do-this/953812/10 "2021-11-04T22:46:42Z")
> [@CookingWithGas](#): > > The proposal is to tax them as wealth, but this is what I disagree with, because it’s only on paper. Yeah, Bezos is worth a lot but if he ever tried to sell all his Amazon stock just that sale would cause the stock to plummet. He is filthy rich on paper but he could not go out and buy $175 B worth of anything. Same thing with Musk, probably even more so since Tesla stock is probably overvalued. > > I don’t think anyone has proposed taxing them as gains, although I don’t know everything that everybody has proposed. Taxing them as gains _has_ been proposed, though I don’t think it’s in the latest drafts of the House bill. And taxing them as wealth may have Constitutional obstacles, though that’s controversial, and IANACL. It’s true that it would probably have some impact on the stock price if Bezos literally dumped all of his shares in one day, but no one is proposing that he do that, and forcing him to pay a few billion a year in wealth tax annually wouldn’t cause him to do that either. And even if he did, for some reason, the impact to the stock price would be short-term. In the long-term, the price reflects the expected discounted cash flows of the company, and that isn’t particularly impacted by who owns the shares. ---
**Author:** ![Do\_Not\_Taunt](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/do_not_taunt/32/2968_2.png) [@Do\_Not\_Taunt](https://boards.straightdope.com/u/Do_Not_Taunt)\ **Post date:** [November 4, 2021, 10:53pm UTC](https://boards.straightdope.com/t/progressive-proposal-for-wealth-taxes-why-not-just-do-this/953812/11 "2021-11-04T22:53:17Z")
> [@XT](#): > > what about if they use the stocks as securities for loans, which I think is how the real wealthy leverage their assets while keeping their tax profile at a minimum. This is a problem today because we only tax gains when they’re realized, so super-wealthy folks avoid ever realizing their gains and use low-interest loans to cover cash flow needs. A wealth tax would still allow the government to capture some of that value, and wouldn’t be subject to this dodge. I have no philosophical problem with taxing unrealized gains as wealth. If you asked my for my net worth, of course the number would use the mark-to-market (ie, current market value) of any securities I own as well as for my home. ---
**Author:** ![D\_Anconia](https://avatars.discourse-cdn.com/v4/letter/d/67e7ee/32.png) [@D\_Anconia](https://boards.straightdope.com/u/D_Anconia)\ **Post date:** [November 4, 2021, 11:03pm UTC](https://boards.straightdope.com/t/progressive-proposal-for-wealth-taxes-why-not-just-do-this/953812/12 "2021-11-04T23:03:40Z")
If the net gain is lower, there will be less investment (and liquidity), by definition. ---
**Author:** ![iamthewalrus\_3](https://avatars.discourse-cdn.com/v4/letter/i/258eb7/32.png) [@iamthewalrus\_3](https://boards.straightdope.com/u/iamthewalrus_3)\ **Post date:** [November 5, 2021, 12:30am UTC](https://boards.straightdope.com/t/progressive-proposal-for-wealth-taxes-why-not-just-do-this/953812/13 "2021-11-05T00:30:44Z")
The other reason that capital gains taxes are lower is that the basis isn’t indexed for inflation. I’m generally in favor of plugging all those holes. Index basis to inflation and tax capital gains at the same rates as normal income. Get rid of qualified dividends (because now they’re normal income). No step up basis at death (so you can’t get around _someone_ paying the income tax by transferring assets to heirs). Some middle class people will pay more taxes for this (even using sane values for “middle class”, rather than $400k in income), so it’s apparently a non-starter. ---
**Author:** ![CookingWithGas](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/cookingwithgas/32/485_2.png) [@CookingWithGas](https://boards.straightdope.com/u/CookingWithGas)\ **Post date:** [November 5, 2021, 12:24pm UTC](https://boards.straightdope.com/t/progressive-proposal-for-wealth-taxes-why-not-just-do-this/953812/14 "2021-11-05T12:24:24Z")
> [@Do\_Not\_Taunt](#): > > It’s true that it would probably have some impact on the stock price if Bezos literally dumped all of his shares in one day, but no one is proposing that he do that, and forcing him to pay a few billion a year in wealth tax annually wouldn’t cause him to do that either. Oh, I know, but my point was not a practical one. It was to illustrate the volatile nature of wealth when measured by the market value of stock holdings. It’s not real money, it’s only the theoretical value at a point in time. It’s only real money when you sell it. ---
**Author:** ![CookingWithGas](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/cookingwithgas/32/485_2.png) [@CookingWithGas](https://boards.straightdope.com/u/CookingWithGas)\ **Post date:** [November 5, 2021, 12:28pm UTC](https://boards.straightdope.com/t/progressive-proposal-for-wealth-taxes-why-not-just-do-this/953812/15 "2021-11-05T12:28:18Z")
> [@D\_Anconia](#): > > If the net gain is lower, there will be less investment (and liquidity), by definition. Oh, absolutely. Less. But not zero. I have not heard a politically neutral economist describe what the impact to the economy would be in such a scenario (nor any economist at all, actually). Let’s go the other direction: If this investment and liquidity is so good for everyone, why not just have zero capital gains tax? ---
**Author:** ![wguy123](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/wguy123/32/3161_2.png) [@wguy123](https://boards.straightdope.com/u/wguy123)\ **Post date:** [November 5, 2021, 2:42pm UTC](https://boards.straightdope.com/t/progressive-proposal-for-wealth-taxes-why-not-just-do-this/953812/16 "2021-11-05T14:42:07Z")
> [@Sam\_Stone](#): > > The difference being, what? That if the unrealized gains are lost the government doesn’t have to pay back the taxes paid? How can you tax unrealized gains as ‘wealth’ since they are, you know, unrealized? Millions of us do pay taxes on unrealized gains in the forms of increased property taxes. I bought my house for a third of what is assessed at now and I’m paying tax rates on a modern assessment, not what I bought it for. ---
**Author:** ![CookingWithGas](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/cookingwithgas/32/485_2.png) [@CookingWithGas](https://boards.straightdope.com/u/CookingWithGas)\ **Post date:** [November 5, 2021, 2:57pm UTC](https://boards.straightdope.com/t/progressive-proposal-for-wealth-taxes-why-not-just-do-this/953812/17 "2021-11-05T14:57:48Z")
> [@wguy123](#): > > Millions of us do pay taxes on unrealized gains in the forms of increased property taxes. I bought my house for a third of what is assessed at now and I’m paying tax rates on a modern assessment, not what I bought it for. This is a good point. IME property taxes are at the county/local level. I don’t know why they tax property values instead of piggybacking on income tax. People like many retirees have escalating property values so their taxes keep going up even though they are on a fixed income. ---
**Author:** ![Do\_Not\_Taunt](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/do_not_taunt/32/2968_2.png) [@Do\_Not\_Taunt](https://boards.straightdope.com/u/Do_Not_Taunt)\ **Post date:** [November 5, 2021, 3:01pm UTC](https://boards.straightdope.com/t/progressive-proposal-for-wealth-taxes-why-not-just-do-this/953812/18 "2021-11-05T15:01:02Z")
> [@iamthewalrus\_3](#): > > The other reason that capital gains taxes are lower is that the basis isn’t indexed for inflation. This is a good point, but lowering the tax rate to 20% is a terrible proxy for trying to capture this effect. Your suggestion is more complicated, but vastly superior. > [@CookingWithGas](#): > > Oh, I know, but my point was not a practical one. It was to illustrate the volatile nature of wealth when measured by the market value of stock holdings. It’s not real money, it’s only the theoretical value at a point in time. It’s only real money when you sell it. But isn’t this true for everything? Once a billionaire sells their assets, they’re going to hold something: usually other securities, or land, or bonds, or dollars. All of which can change in value. With dollars, you can argue 1) they’re more stable in value than stocks and 2) it’s the currency you pay taxes in, so instability might not matter as much for tax purposes. But it doesn’t really matter, because most non-cartel bosses just aren’t going to hold large amounts of currency. If you want to tax wealth at all, you’re going to have to deal with the valuation question. And if you don’t want to tax wealth at all, you’re going to have a hard time dealing with some of the core problems plaguing early-21st century western society. ---
**Author:** ![D\_Anconia](https://avatars.discourse-cdn.com/v4/letter/d/67e7ee/32.png) [@D\_Anconia](https://boards.straightdope.com/u/D_Anconia)\ **Post date:** [November 5, 2021, 3:14pm UTC](https://boards.straightdope.com/t/progressive-proposal-for-wealth-taxes-why-not-just-do-this/953812/19 "2021-11-05T15:14:40Z")
> [@CookingWithGas](#): > > Oh, absolutely. Less. But not zero. I have not heard a politically neutral economist describe what the impact to the economy would be in such a scenario (nor any economist at all, actually). How would less investment benefit the economy? ---
**Author:** ![Hari\_Seldon](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/hari_seldon/32/5173_2.png) [@Hari\_Seldon](https://boards.straightdope.com/u/Hari_Seldon)\ **Post date:** [November 5, 2021, 4:03pm UTC](https://boards.straightdope.com/t/progressive-proposal-for-wealth-taxes-why-not-just-do-this/953812/20 "2021-11-05T16:03:36Z")
I generally agree with the OP. To this, I would add a confiscatory tax on extremely short term capital gains. Say 99% on shares held less than a day, 90% if held between one and seven days, 80% between 8 and 30 days,… Very short term trading is just high stakes gambling and does not contribute at all to the economy. [Next page](https://boards.straightdope.com/t/progressive-proposal-for-wealth-taxes-why-not-just-do-this/953812.md?page=2)