I’ve seen the usual frothing at the mouth reports of how the ultra-rich pay less taxes than salaried Sam and how we should be raising taxes everywhere to pay for all the government spending we are doing and will be doing in the future. For the greater good of course. Leaving aside the question of whether we should be increasing government spending willy-nilly, the specific question of taxing unrealized capital gains disturbs me.
It goes without saying that if this bill comes out there will be sufficient loop holes that the ultra-rich will be unaffected. The people who will be squeezed, are the people who are always squeezed, the people in the middle. Middle class folks putting away spare change in investment accounts to try and combat the negative bank interest rates, or to earn a little extra for a luxury item here and there will be the ones hammered in the name of social progress.
However one thing in the reports that have come out interested me: The fact that people borrow against unrealized capital gains, thereby generating income, without actually paying taxes on it (given the colorful name “Buy, borrow, die”)
I’m against a general unrealized capital gains tax. I think that this disincentivizes investments and will hit the small investor who has had the foresight to put away some money and is now trying their luck in the financial markets.
However, I do think a tax, a capital gains tax or a regular income tax, on people who are taking out loans against
- Second homes
- Shares held
- Art works
and, in general, any asset which could reasonably have been sold to realize the gains to generate income, is fair and acceptable.
Basically, if you borrow money against anything but your primary shelter, you are basically trying to dodge the taxes. I mean really dodge taxes, and this is a loop hole that should be plugged. You have a Monet? You need money? Sell the Monet! Or, if you really think the Monet is going to get you a LOT more money in 30 years, well, pay the taxes on the money you borrow against the Monet.