I’m trying to figure out whether I’ve heard as much nonsense in such a short period of time as I’m hearing now about the Biden-Harris plan to tax unrealized capital gains.
Under the plan, The increase in the value of the assets will be taxed as income.Even if the owner does not sell the asset. Currently, these paper profits are not taxed.
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Never mind that this proposal isn’t new — and it doesn’t look like it’ll be law anytime soon, anyway.
Or it only applies to a small number of people with a net worth of more than $100 million.
Or it will be created to fix a very specific problem, which is that many very wealthy people actually pay almost no income tax at all.
Even when I put all that aside, almost everything I hear against the proposal is wrong and an insult to our intelligence.
I’m not particularly liberal. I’m a registered freelancer, an investor, and a venture capitalist. But these arguments are so bad they make me want to pick up the hammer and sickle. Start singing “International”. Tax-cut conservatives and Republicans should be embarrassed.
First, let’s start with all the arguments against this policy that are just arguments against taxation in general – for example, if we tax unrealized gains, it means People are punished for owning assets, or saving money..
By this standard, I am penalized for working for a living, because I have to pay income tax. I am penalized for owning a home, because it is subject to property tax. I am penalized for inheriting money, because I have to pay inheritance tax. I am penalized for shopping while paying my state sales tax.
What’s left? Uh… nothing.
Look, I get it. These people don’t like paying taxes. Nobody does. But the government money has to come from somewhere. And if I want to live in a no-tax, no-government mess, I might as well move to one of the world’s failed states and take a chance.
These people are no different from left-wing extremists who also want something for free. They deserve each other.
There are also complaints that taxing unrealized gains is somewhat unfair because the investment has not yet been sold, or because it would be logistically very difficult to tax it before the sale.
Foy.
Why should I sell something before it becomes taxable? My city taxes my home based on its assessed value each year. I don’t feel any obligation to wait until I sell it.
Mutual funds and ETFs charge me fees based on the total value of my investments. These funds don’t just charge me for the funds I sell. I pay a percentage of the total value, including any unrealized gains.
If you have a financial advisor or portfolio manager, they will do the same thing.
They will not charge you fees based on the gains made, they will charge you fees based on the total assets.
Truly amazing, especially since such a calculation is claimed to be completely impossible.
I’ve never heard anyone argue that this is unfair or the wrong way to do business.
In the past, taxing unrealized capital gains may have been logistically impossible. Imagine all the paperwork that was required in the days before computers.
It no longer exists.
I bet your broker is tracking your total portfolio value by the day, hour and minute, even if you’re just a regular customer with an online account. Doing the math on these things is easy now.
My favorite complaint about taxing paper gains comes from those in hedge funds and private equity, whose businesses will be hit the hardest. These are the people who make billions of dollars by charging their clients exorbitant fees… on the total assets they manage.
No, not only the realized gains, but also all the unrealized gains.
The typical manager charges clients about 2% per year of the value of their investments, just to breathe, plus 20% of profits (if any). This is widely known as 2 and 20 model.
None of these ridiculous fees are charged on realized assets alone. If you hand over $1 million to a hedge fund or private equity fund, they will start charging 2%, or $20,000, a year on day one—often before they invest your money.
And if somehow your portfolio goes up by, say, 50%, they’ll take another 20% of that — $100,000 — in fees. No, they won’t wait for any of that gain to materialize, or “crystallize,” or whatever term they use. You’ll pay that fee quarterly, if not monthly, as the supposed performance occurs.
If the investments then collapse, before you even make a single cent of personal gain, do you think they will give you back that money? How stupid are you?
And these are the same people who pretend to be shocked – Shocked! – By the idea of charging fees based on the value of assets or unrealized gains: “What kind of Soviet tyranny is this?”
Pass the tissues.
These guys don’t seem to have any grounds to complain about the tax code. They already get full service from the IRS every year.
Hedge fund and private equity managers take advantage of the so-called carried interest loophole, which is perhaps best described as the double tax exemption for Ferraris.
This is a special tax break for them only, This is so terrible. Non-experts simply refuse to believe it when you tell them.
This means they pay. Taxes at special low ratesThey get the chance to defer paying taxes for years.
Try doing this at home.
It doesn’t look like they’re creating value. As Warren Buffett has pointed out, these funds, over time, Generate worse returns for its investors than low-cost index funds..
Personally, I think we should impose a special tax on all hedge fund and private equity managers. How about a 2% tax on their personal assets per year, plus 20% of your gains—realized and unrealized?
Was this scandalous? Or was it thieving? Absolutely. We learned from the best.
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