Principled Perspectives: Wealth Tax

Showing posts with label Wealth Tax. Show all posts

Monday, December 2, 2024

More on Harris’s Wealth Tax Scheme

QUORA: ‘Do Harris voters know she wants to tax unrealized capital meaning if you own your house and the value goes up you have to pay taxes on the increased value even though it may go back down later?’

In answer to the above question, Jeremy Losek attempted to answer the question by claiming that the tax is only limited to a few tax dodgers exploiting a legal technicality. Losek writes:

This is not what Harris means when she says she want [sic] to tax unrealized capital gains. She isn’t going after people who purchase stock and then sit on it till retirement.

She is going after wealthy people who get paid in stock to avoid income taxes.

Losek goes on to purportedly show the gimmicks those wealthy people use to turn the allegedly untaxed stock income into an income tax-skirting windfall. But Losek falls flat, because he starts from a false premise—that compensation paid in stock is not subject to regular income tax. But as I explain, those supposed “tax loopholes” are beside the point. My reply:

In fact, the value of stock paid as compensation is taxable as regular income. The method of taxation varies with how the stock is paid. But, ultimately, tax is owed.

Of course, this is a rationalization. If, as Harris claimed, there are loopholes that allow a few wealthy people to legally skirt taxes, then the answer is simply to fix the existing tax rules that allow it. Why institute a draconian new tax to fix a problem that enables a handful of tax dodgers?

Because those few are not the intent.

What Harris has in mind is a sinister scheme to open Americans’ vast long-term growth savings and investment to taxation, with income tax loopholes as an excuse. Don’t be duped by her promise to exempt most of us from the tax. Once the precedent is set, and the principle that the government can tax potential income (unrealized capital gains) is accepted, the tax will inevitably be expanded to ensnare all of us. Even AXIOS, which fact-checked Harris’s scheme, understood this:

There's also a slippery slope concern; the big mental and legislative hurdle is taxing unrealized capital gains — after that, lowering the threshold below $100 million would be easier, even if not currently on the table.

The same goes for expanding the scope of the tax to more sources of unrealized capital gains, such as houses. Once enacted, what limiting principle is there to stop the political class?

The federal income tax was originally sold to Americans as a tax only on a few super-rich Americans.

Fortunately, Harris lost the election, and the Republicans control Congress. So the danger of a wealth tax is nil—for now. But don’t kid yourself. The idea won’t go away.

Wednesday, October 16, 2024

The Truth about Harris’s Proposed Tax on Unrealized Capital Gains

A meme going around Facebook about Kamala Harris’s proposed tax on unrealized capital gains reads “Home Owner Do you realize that the Harris plan to tax unrecognized Capital Gains mean if your house goes up in value you will have to pay that Tax Even if you don’t sell your House!”

The meme drew widespread criticism for it’s falsity. On the face of it, this is factually wrong—but only on the face of it. Harris specifically states that she would limit the tax to those with $100 million in assets, and only to those who don’t pay their “fair share,” defined as 25% at minimum.

But in engaging the skeptics, I argued that, properly analyzed, the meme is in fact correct. Below is a summary of the postings I made on Facebook.

Properly understood, the meme is exactly correct—“Harris's plan to tax unrecognized capital gains MEANS” your home. No, it’s not in her published plan. She's running a campaign. Of course she’s not stupid enough to SPECIFY it for middle class homes. Not now. Politicians regularly sneak in their schemes first for the rich. But once in place, the logic of the principle opens the door to widening the scope of the tax to more and more taxpayers, ultimately snaring the vast middle class. Even AXIOS, which was cited by one fact-checking correspondent challenging that meme, understood this:

In other words, once you accept the principle, and set the precedent, it will be easy for politicians to expand the power. James Madison, referring to the increasingly tyrannical British laws that led to the American Revolution, said

The free men of America did not wait till usurped power had strengthened itself by exercise, and entangled the question in precedents. They saw all the consequences in the principle, and they avoided the consequences by denying the principle. [My emphasis]

Fortunately, the Founders understood the slippery slope. That’s why America exists.

We, too, should understand the consequences in the principle Harris and the Democrats are trying to sneak in.

Many people believe Harris’s tax on unrealized capital gains, also known as wealth taxes, will always apply to the miniscule centi-millionaire group. But when we start sliding down the slippery slope, and it hits middle class homes, they’ll say “But I didn’t mean this!” Yes, you did. The total value of Americans’ homes tops $50 trillion. How long does anyone think the political class will ignore that pot of gold? If we don’t see the consequences in the principle of taxing unrealized capital gains, and deny the consequences by denying the principle, we will be opening the door to taxing our homes—and virtually every non-liquid asset Americans own, like 401ks, IRAs, brokerage accounts, collectables, the values of pensions, and on and on to the unrealized capital gains of any asset the politicians can discover.

Personally, my main reason for opposing unrealized capital gains taxes is that it is immoral. It’s wrong for the middle class. And just as wrong for mega-millionaires. It’s also grossly impracticable, as many countries found out by hard experience. As CATO reports:

More than a dozen European countries used to have wealth taxes, but nearly all of these countries repealed them, including Austria, Denmark, Finland, France, Germany, Iceland, Ireland, Italy, the Netherlands, Luxembourg, and Sweden. Wealth taxes survive only in Norway, Spain, and Switzerland.

For both moral and practical reasons; for our own financial well being; and on principle, we should reject Harris’s hideous wealth tax scheme. This is a really big deal. It is something entirely new, and would open up a whole new target on Americans’ financial health. We should not give our tax-hungary political class that target. Let’s deny the consequences of the principle. Reject Harris’s scheme to tax our homes!