The ways this is idiotic:

1. "The government says: "Cool, but that card is worth $500 now. You owe us $100 in taxes." You: "…I didn't sell it.""

There is currently no tax on unrealized gains. If there ever were, it wouldn't be 20%. It would be something tiny like 1-2%. It's a wealth tax. Wealth taxes are tiny compared to income taxes precisely because they're taxing something you're holding and will still have next year if nothing changes.

2. "Next month? That card drops back to $50."

Why does it "drop back to $50"? OP said that the $500 value was because someone offered that much for it. Did that person no longer want to buy it? It's true that sometimes the value of things is fluid, which can make wealth taxes hard. But a 90% drop in value over the course of a month? Let's be realistic.

3. "Your mom calls you crying. She has to sell the house she raised you in. Not because she can't afford it. She's lived there 30 years. It's paid off."

Yes, housing taxes are wealth taxes. Sometimes when the place you lived in appreciates enough, the property taxes go up a lot. So yes, sometimes people do have to move when their properties go up so much they can no longer afford the property taxes. But, when that happens they get to sell the place, and if the property taxes are so much that the person can no longer afford them, that means that the property is worth a fortune. The property tax is often 2% or below. So, if mom owes $15,000 in property taxes, that means her property is worth at least $750,000, probably actually more than $1M. Cha ching! She can buy a nice, smaller place now that she doesn't need to raise kids, and use the rest to go on some nice vacations.

Yeah, it sucks if you have an emotional attachment to a place you can no longer afford. But, there are plenty of people who can't afford to buy a house at all, who weren't even allowed to mark their kids' heights every birthday because they were renting. Wealth taxes are a way to even things out. Property taxes are a pretty shitty form of wealth taxes because they hit the middle class harder than the ultra rich, but people who don't own property don't pay property taxes, which is good.

4. "Next year the market crashes. His business is worth $200,000."

Man, this guy can't catch a break, all his relatives have everything crash 90% in value immediately after having to pay a tax bill they can't afford, despite wealth taxes being tiny amounts.

In addition, most of the time wealth taxes have a threshold exactly for this kind of reason. If someone owns a $2m business in a place with wealth taxes, they may pay nothing because the first $5m is exempt.

Yes, sometimes wealth taxes are more painful to upper middle class or the moderately rich because they don't have the armies of lawyers and accountants who can find the best strategy to minimize their taxes. But, the answer isn't to scrap wealth taxes entirely. It's to accept that even the moderately wealthy should pay more than people who own almost nothing, and to properly fund the tax authorities and financial crimes divisions of the cops so they can go after the ultra rich when they illegally avoid taxes.

The Pokémon card example is ludicrous - aside from the fact that CCG cards are not “wealth”, or the fact that no one would offer $500 for a card that is only worth $50, a single buyer does not make a market or set the value. Stocks, the source of most outrageous wealth, by definition have a market value, and even the most frothy of assets don’t swing 10x in such a short period of time.

The mom calling about selling the childhood home is very real, in fact it already happens! Guess your friend is unfamiliar with property taxes. My home has tripled in value and the government appraised value went up by a smaller amount, and now I pay taxes. When my mortgage is fully paid off, I will still owe the local government taxes every year. All those “tax free” states lean on regressive taxes like sales tax and property taxes to avoid collecting progressive income taxes, so this problem is even worse in those states.

A while back I owned a small business, and because I didn’t pay myself in stock, I had to pay taxes every year based on how much my company profited. My business partner and I would do a distribution every year to pay those taxes. We paid more every year in taxes on our modest business than Tesla paid last year on $5.7B in income. Also, company “worth” for private businesses is based on appreciated assets and cash on hand… a business owner who “lost” 90% of the business value of a two decade old business in a year has much, much bigger problems than unrealized gains taxes.

Middle class people are already paying wealth taxes. Mutual funds are taxed on unrealized gains all the time, albeit at capital gains rates (because we value capital more than labor). Property taxes are paid on the biggest source of wealth most people own. Even poor people are paying annual taxes or fees on their cars.

I agree, your friend is a moron, but I think most people knew that the second they saw “ancap”.

Would making the law kick in after a certain amount of net worth be the answer in that situation?

Start taxing 20% from $1B+ and I think 99.999999% of us are fine.

A wealth tax wouldn't apply to normal people below an obscene threshold. And you wouldn't tax a primary residence at all, as is already the case with our tax code on near every score. You wouldn't tax a baseball card collection.

But if a person put a bunch of paypal stock into an IRA account, and it turned into 5 billion dollars later, you would find a way to tax most all of that. If bezos' worth increased by billions, then a portion above an obscene level would be taxed, often exempting the first so much then graduating higher levels, as is customary in taxation here.

You are excusing the super rich from taxes by associating it with hypothetical unfair taxations against normal people for smaller amounts. Which is the same way they got rid of the estate tax, by lying about who paid the estate tax, claiming family farms and small business paid it, when it was only obscenely rich people that paid it.

Now, no one pays it. An heiress just inherited 200 million on her 19th birthday or something, not the entire estate just a piece of it, without paying a dime in tax, thanks to the dishonest arguments mirroring the ones you made on this in the first half of your piece at least.

Bezos paid 600 dollars in 2020, a year his net worth skyrocketed, and where he spent an incredible amount of money he got without getting a paycheck. He paid less in taxes than we do, not just per capita, total. He claimed the child tax credit. When your net worth increases by millions above millions, it needs to be taxed, whether it's when they borrow against the value of that which is where they now realize much of their income that is tax free now, or whether it's regardless of it being realized.

If the value they were taxed on an increased price of an asset fell later, they would be able to subtract that back 3 years and forward ten years to offset other taxable income, that's the way it's already set up, itself quite unfair as working people get no such consideration to only pay taxes on profits, which would be akin to only paying taxes on wages after paying all of your core bills.

In 1950, the majority of taxes, like 90 percent, came from businesses, now 90 percent is ripped from working people, and the richer they are, the less they pay above a certain threshold, something has to change.

Why's that? You stated your opinion knowing that many people are ignorant of it, but failed to back it up. Why should we research your idea when we have ideas of our own? Don't suggest we're ignorant if you're not willing to take the first step in educating us. Your contempt feels good but doesn't solve any problems. Ciao

This is the process, extremely simplified:

1. It’s 1970. You inherit $10M from your rich dad who worked hard.
2. Buy $10M index fund stock.
3. Borrow $10M against stock.
4. Live tax free off that $10M loan for 30 years (you can do that because you started in 1970 when it was cheap to buy a house).
5. Your stock is now worth $58M (avg 6% per year for 30 years)
6. Your kids inherit the stock at its current value and immediately sell $10M worth to pay off original loan. They pay no capital gains tax because the stock barely moved in the time between when they took ownership and selling it. All of the value growth since original purchase in 1970 is now tax free. The kids now start with $48M.
7. Repeat

Obviously, there is more to it than this. For example, this does not account for interest in the loan, or diversification of investments, or ability to hire accountants to maximize on the process.

https://budgetlab.yale.edu/research/buy-borrow-die-options-reforming-tax-treatment-borrowing-against-appreciated-assets

It's actually a real thing.

Since taxes are paid when an asset is sold, not when it goes up in value, your net worth goes up with no tax liability change. When you die, the purchase price for tax purposes resets. Now the inheritor sells the assets. Since the sale price is essentially the same as the taxation price, there's no taxes.
You're borrowing today's money against tomorrow's value and taking the difference out of your death messing with taxes to free up the value.
From a financial perspective the time horizon for return doesn't matter, only that the return is balanced against the time. From that perspective, the people giving the loan have no reason to really care since it makes them look good and they'll at least not be working there when and if it goes wrong.

They get a painting worth 10K, get a loan for that, then get it appraised for 30K, get a loan on that from somewhere else and pay off the other one. That's one idea.

The second is they like assets that provide passive income and appreciate. You'll find a lot get into land as well and rental units.

For the individual wealthy, they aren't. Some loans might get paid off by taking another loan, but the goal is to take the loan to the grave. The loan would get paid after death because then the estate can sell the stocks without paying any capital gains tax.

Let's say you buy 1 million worth of stocks. The day before you die that stock is worth 51 million. If you cash out that stock you're paying capital gains tax on 50 million. Let's say the capital gains tax is 20% which means you'd pay 10 mil in taxes. So you get 41 million from the sale. Let's say the loan is exactly 41 million so to pay off the loan you get nothing.

But if you die and that stock goes to the estate they haven't gained any capital from the stock so when they sell it they pay no tax on it. The estate then sells the stock tax free to pay off whatever debt there was (the estate sells only 41 million worth of stocks keeping the 10 million on stocks). That 10 million is effectively free money that goes to the inheritor.

Basically it's all just tax evasion for the ultrawealthy. Except it's legal so technically it's not tax evasion. And realistically the numbers are even more astronomical than what I used as an example.

Yeah because Communism worked so well for Russia, China, North Korea, etc. Communism is NEVER the answer, since it will ALWAYS get abused.

This is u ironically why the rich should support a wealth tax.

Ok, but how about something instead of communism, because that never works.

I think the 'unrealized assets' should be taxed as 'realized' if they are used as collateral. Yes, it would affect the reverse mortgages and such, or home equity loans, but fuck it, I'd take those relatively small pains against the massive societal gains.

I'm not even close to the type of person where this strategy is an option, but the magic is in the stepped-up basis from what I understand.

Let's say an asset is purchased for $1 million, held until it's worth $10 million, and used to secure a $5 million loan. If you sell the asset, you owe taxes on the $9 million capital gain. If you die, the asset's value "steps up" to the new baseline of $10 million. Your heir could then sell it with no capital gains tax, and pay off the loan and pocket the rest. If they hold onto the asset, and it appreciates to $11 million, they would only owe taxes on the gain of $1 million, not $10 million.

The whole scheme makes sense when it's applied to a random farmer inheriting land from his parents: you dont want to force him to sell the land to pay capital gains. It makes a lot less sense when it's someone inheriting stocks worth the GDP of a country.

For the ultra wealthy, the value of their assets goes up faster than the interest rate of the loan.

It’s complicated…

The estate pays the loans back, but as the assets appreciate, the loans are covered….

The trick is moving your assets around, so that you personally own very little, and they have trusts or LLCs that own the assets so there isn’t inherent tax liability

Shrug fuck us.