As if Alexandra Ocasio-Jones infuriating Amazon was not enough for Long Island City, and New Yorkers in general, when the world's biggest online retailer scuttled plans to build its New York-based HQ2 as a result of socialist blowback against arguably the world's most successful (whether one loves or hates him) capitalist, Democrats appear intent on doubling down, and infuriating not just Jeff Bezos, but virtually all Americans who save money and invest their capital.
The reason: according to the WSJ, the top Democrat on the Senate’s tax-writing committee has proposed taxing unrealized gains in investment assets every year at the same rates as other income, offering not only an idea that would transform how the U.S. taxes the wealthiest people, but a solid reason for those same people to get the hell out of America.
The proposal from Senator Ron Wyden of Oregon is the latest berserker plan from Democratic lawmakers and presidential candidates for boosting taxes on the wealthy to address economic inequality and provide funding for their policy agenda. And while this specific proposal has little chance of becoming law soon - or, one hopes, ever - such ideas could quickly gain momentum if the party succeeds in next year’s elections.
What is especially insane is that this proposal is effectively the polar opposite of that other bananas proposal putched by AOC and various other Democrats, namely MMT, or money printing, because why bother taxing anyone, rich, poor or otherwise, if you can just print all the money you need. We are confident we won't get a satisfactory answer, ever.
Going back to Wyden’s suggestions, capital gains would be taxed annually based on how much assets have gained in value. Now, luckily, gains are taxed only when assets are sold and at a top rate of 23.8% instead of 37% for ordinary income. As for the reasons why sane individuals only tax booked gains, this is mostly three-fold: so that there is actual funds that can be taxed (and avoid liquidation of other assets just to pay one's tax bill), so that the government doesn't end up owing Net Operating Losses on unbooked losses, oh and because it's impossible as the government would somehow have to keep track of the value of every single asset at every single moment.
“It would be a huge change,” said Lily Batchelder, a tax-policy aide to President Obama, in what is the understatement of the day. “It would be a really big shift in our income-tax system.”
While Wyden’s tax differs from Sen. Elizabeth Warren’s wealth tax and Bernie Sanders’ higher estate tax. Like those plans, however, Mr. Wyden’s concept would present "logistical challenges" as the WSJ puts it sarcastically.
He would need to figure out how to value complex assets, handle declines in value, deal with people without enough cash to pay the tax and address illiquid investments such as closely held businesses and real estate.
A simpler way of putting it is that the government would effectively have to somehow value every single asset at every single moment. Good luck with that. A similar proposal from Eric Toder of the Urban Institute and Alan Viard of the American Enterprise Institute would generate an estimated $125 billion in 2025 alone, according to their 2016 paper. That plan was focused on publicly traded assets and applied a different rule to closely held businesses.
The proposal announced Tuesday “eliminates serious loopholes that allow some to pay a lower rate than wage earners, to delay their taxes indefinitely, and in some cases, to avoid paying tax at all,” Mr. Wyden said in a statement.
Republicans, in contrast, have fought to lower capital-gains taxes. Sen. Pat Toomey said capital gains get preferential rates now for several reasons, including to mitigate inflation. Under Wyden’s proposal, he said, someone could pay taxes on an investment one year as it rises, even if the investment later fails.
The good news, is that Toomey said the plan would go nowhere as long as Republicans control one part of the government.
“That,” he said, “is a breathtakingly terrible idea.”
It actually is, and yet for those who are puzzled by how on earth this would actually look in the real world, consider someone who bought $1 million of stock in 2002 that is now worth $10 million and doesn’t pay dividends. Under current law, the investor would have paid no income taxes on that $9 million gain and would pay none if the stock is left to an heir.
Under Wyden’s plan, she would have paid taxes on the $9 million gain in chunks each year as the value of the stock grew. That could be trickier if, instead of publicly traded stock, the asset were an operating business that was harder to value each year; yet somehow the Democrat senator thinks that it's easy as apple pie to value, well, anything.
There is at least some semblance of rationality: capital losses could still be deducted from gains, as they are under current law. Asset owners also wouldn’t pay additional taxes when they eventually sold an investment, because they would have already paid annually. There would be exemptions for the sales of primary residences and retirement accounts like 401(k)s, Wyden’s office said.
Ultimately, one can only hope that this plan that may have well emerged from the deepest recesses of Soviet Siberia never sees the light of day as the only stock that would be generating capita gains - whether booked or not - would be that of the airline that is taking America's taxpayers on one way rides to any other place in the world.
Joking aside, the last time Democrats proposed an idiotic fiscal plan, i.e. AOC's Green New Deal, none of them voted for it. We wonder if McConnell put Wyden's proposal up for a vote, if any of them would have the guts to put their name to an actual vote this time.
Trump praises @AOC Green New Deal: "Done by a young bartender, 29 years old, wonderful woman.”— Charlie Spiering (@charliespiering) April 3, 2019
Mocks establishment Democrats for being “petrified” by her and supporting it