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Without any changes, this would push investors towards the non-included class of real estate, which would exacerbate the housing crisis.
And on top of that, I can think of a million ways they could skirt this regulation with some clever accounting.
Create private startup as a personal asset holding fund > Transfer shares of publicly-traded liquid investments to private startup > Give yourself illiquid shares of the startup that have a time-bound restriction before they are allowed to become liquid (but don't have to become liquid, and can stay illiquid for any longer period of time chosen)
Result: You, the individual, don't hold all the liquid investments. You hold an illiquid asset that's backed by all of the liquid investments. Illiquid assets are not fully taxed under this proposal.
They need to fix this sort of loophole, otherwise it would just be an invitation for the ultra-wealthy to posture about how they're "already being subjected to so many harsh tax laws," while not actually paying the relevant taxes.
Buddy as soon as they give money to a private start up it wouldn’t be unrealized gains. You can’t give stocks to a startup. Even if you could they would count as income for the business and would be taxed. And even if they went through the regular fuckery of business tax loopholes, they would have stimulated the economy through spending so it’s a win win.
I was mostly thinking of this on a continuous basis.
This tax would be assessed continuously, but it would only be assessed once as an income tax for the business. Then, the business is not considered an individual anymore, and doesn't fall under these new tax rules, meaning any investments would no longer have an ongoing tax on unrealized gains, only once realized. Any of these wealthy people could start a new, privately held LLC as a holding entity.
I'm not saying this proposal is bad in any way, I'm certainly in favor of it. I just think it has some problems that could lead to tax loophole fuckery that might reduce the income it's expected to bring in.
Ok, but the problem is that unrealized capital gains are being used for disposable income by taking out loans using a tradeable asset as collateral. I suspect it would be much harder to get a loan using an illiquid asset like this one.
True, but these ultra-wealthy individuals aren't taking loans out on anywhere near the majority of their portfolios.
If a billionaire has $1B, they can put $900m in the illiquid startup, and $100m in their own brokerage account.
They can get loans using $100m of collateral, only paying tax on $100m, instead of paying tax on the other $900m that they aren't even actively using for loan collateralization.
Some who has $900m in a truly illiquid investment and $100m in liquid assets is basically a paper billionaire. As long as $900m is illiquid they have the means of someone with only $100m, and I'm OK if the IRS treats them that way.
You'd have to pay property tax then, and unless your in California your paying that on your "unrealized gains" as well since they'll re-asses your property every few years and tax you on the newly assessed value.
True, but all home buyers already pay property tax for the properties they're buying up, and these properties will be owned by someone, regardless. If an institutional home-buying group doesn't buy a house to immediately rent out for higher than the mortgage rate, someone else will get a mortgage on it for themselves instead.
But if these wealthy investors are now not earning as much money from intangible assets with highly elastic demand, such as stocks, they might not have much of an issue switching more investment capital to a tangible asset with more inelastic demand, for a now only slightly lower rate of return: Real Estate.
The fact that real estate was excluded from taxable assets in this proposal, when the only subject of these taxes are people with over $100m income, is crazy to me. It should be included.