More Taxes to Cover Irresponsible Spending

 

For years we have been bemoaning the federal debt; we are now sitting at over a whopping $34 trillion in debt and both sides of the legislature have contributed to it. And from the latest administration proposals, it’s clear that they have no reservations about putting the load on citizens, even though they say that they will only tax corporations and “the rich.” What’s being proposed?

Several proposals are on the table, but the most visible and controversial might be the capital gains tax:

According to a report issued by the Treasury Department, led by Secretary Janet Yellen, the president’s proposed fiscal year 2025 budget would increase the top marginal rate on long-term capital gains and qualified dividends to a staggering 44.6%. A capital gains tax hike of that magnitude would take the rate to its highest level since it was first introduced in the early 1920s.

The reasons that capital gains will affect the entire country are numerous. First, the capital gains proposal is recommending that unrealized gains be taxed. If you’re unfamiliar with that term and its implications :

An unrealized gain refers to the potential profit you could make from selling your investment. In other words, if an asset is projected to make money but you don’t cash in on that profit, it’s an unrealized gain.

According to Pocketsense, in order to calculate unrealized gains and losses, first subtract the historical value of your asset from its market value. If the amount is positive, your asset has increased in value. If the amount is negative, it means that your asset has decreased in value.

In other words, the government expects people to guess about the amount of unrealized gains; if they are wrong about their guess when the gains are finally realized, it’s not clear if they can correct it in the future.

Ultimately, Americans for Tax Reform say that citizens, accounting for state taxes and the proposed federal reforms, could be paying a 50% tax rate on their income.

Although the administration is making these proposals, Congress—first the House, and then the Senate—are the only ones who can pass tax legislation, with the president approving it. We have seen a number of irresponsible Executive Actions during this administration, and we may have reason to be concerned that the administration will use EAs to enact these “rules.”

Also, enacting this legislation could encourage lawmakers and policymakers to maintain high rates of inflation in order to increase federal tax income.

These drastic proposals don’t bode well for those people who are struggling with inflation in their everyday lives. They already see how their available income has been reduced by inflation, and these policies will only increase their burden.

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  1. Arahant Member
    Arahant
    @Arahant

    I am hurrying off to something else right now, so forgive my questioning this here, but do you mean deficit (annual) or debt (accumulated)? And do you have enough zeroes.

    I quickly looked up and see this year’s deficit at $858 billion, and debt at 34 trillion dollars. Those are very large numbers. Thank you for coming to my Ted Talk as I run out the door.

    https://www.usdebtclock.org/

    • #1
  2. Susan Quinn Member
    Susan Quinn
    @SusanQuinn

    Arahant (View Comment):

    I am hurrying off to something else right now, so forgive my questioning this here, but do you mean deficit (annual) or debt (accumulated)? And do you have enough zeroes.

    I quickly looked up and see this year’s deficit at $858 billion, and debt at 34 trillion dollars. Those are very large numbers. Thank you for coming to my Ted Talk as I run out the door.

    https://www.usdebtclock.org/

    Geez. My bad. Fixed. That’s why I didn’t use zeroes!

    • #2
  3. DrewInWisconsin, Oaf 🚫 Banned
    DrewInWisconsin, Oaf
    @DrewInWisconsin

    And consider how much of our income is confiscated to be sent to foreign countries. Does any other nation take so much from its own citizens to distribute to non-citizens?

    The American Citizen is the ATM of the entire world.

    (And yes, the bulk of the tax burden falls on and continues to fall on the dwindling middle class.)

    Susan Quinn: Although the administration is making these proposals, Congress—first the House, and then the Senate—are the only ones who can pass tax legislation, with the president approving it. We have seen a number of irresponsible Executive Actions during this administration, and we may have reason to be concerned that the administration will use EAs to enact these “rules.”

    I’m sure Congress will pass a responsible budget that will not require any increase in taxes.

    Ha ha ha. I could barely finish typing that I was laughing so hard.

     

    • #3
  4. Ekosj Member
    Ekosj
    @Ekosj

    And from where will these high net worth individuals get the cash to pay the tax on unrealized gains?  They’ll likely have to sell some of those shares.   And what happens when large holders sell shares?   Do share prices go up or down?    So if you are invested in the market … have a 401k… have a pension … you in a union… a teacher, fireman, government employee, auto worker whatever… your retirement funds will likely take a hit.  

    • #4
  5. Red Herring Coolidge
    Red Herring
    @EHerring

    Arahant (View Comment):

    I am hurrying off to something else right now, so forgive my questioning this here, but do you mean deficit (annual) or debt (accumulated)? And do you have enough zeroes.

    I quickly looked up and see this year’s deficit at $858 billion, and debt at 34 trillion dollars. Those are very large numbers. Thank you for coming to my Ted Talk as I run out the door.

    https://www.usdebtclock.org/

    Too many zeros 

    • #5
  6. Susan Quinn Member
    Susan Quinn
    @SusanQuinn

    Ekosj (View Comment):

    And from where will these high net worth individuals get the cash to pay the tax on unrealized gains?They’ll likely have to sell some of those shares. And what happens when large holders sell shares? Do share prices go up or down?So if you are invested in the market … have a 401k… have a pension … you in a union… a teacher, fireman, government employee, auto worker whatever… your retirement funds will likely take a hit.

    Precisely. But they simply Biden et al. don’t care. 

    • #6
  7. Susan Quinn Member
    Susan Quinn
    @SusanQuinn

    I have now corrected all the errors in the opening of my post, and I apologize for my carelessness. I knew the facts, but…

    • #7
  8. David Foster Member
    David Foster
    @DavidFoster

    Capital gains tax rates are misleading in a period of inflation. You are paying taxes on ‘gains’ due to inflation as well as on your real gains, so the effective tax rate in real (inflation-adjusted) terms is higher than the nominal tax rate.

     

    • #8
  9. Rodin Member
    Rodin
    @Rodin

    Robert Barnes had an interesting comment on this proposal: Because there is no actual sale involved, the tax is not an income tax, it is a property tax that the Federal government cannot lawfully collect:

    Article I, Section 9, Clause 4:

    No Capitation, or other direct, Tax shall be laid, unless in proportion to the Census or Enumeration herein before directed to be taken.

    This clause basically refers to a tax on property, such as a tax based on the value of land,[2] as well as a capitation.

    When I heard him say this I wondered how is this different from the doctrine of constructive receipt where the taxed individual did not actually receive income. The difference is that in constructive receipt there is realized income from a sale or sales, but by prior arrangement the income is directed in a way that the taxed person controls or otherwise benefits without having the income in hand. So this unrealized gain proposal is something novel if the asset is simply allowed to grow in value without sale.

    But, I can see a partial government work around if the asset is pledged for a loan and an eventual sale of the asset helps pay off the loan. In that instance the government might properly both calculate and allocate income tax based on the unrealized value as of the year in which the loan was acquired for which the asset was put to beneficial use. But if the loan is repaid without selling the asset, then a taxable event has not occurred.

    • #9
  10. Fritz Coolidge
    Fritz
    @Fritz

    The property tax system already levies taxes on unrealized gain. The job of the assessor is to determine what a given piece of property is worth, and then applies the local jurisdictions’ tax rates to that value. If the value of the asset falls year over year, however, there is no refund, just a slightly lower tax bill. Maybe.

    Even with no new laws, all Biden and the Democrats have to do is let the Trump tax cuts expire, and starting in 2026, we will see a whopping increase in our taxes, with small businesses and their owners the hardest hit.

    • #10
  11. DrewInWisconsin, Oaf 🚫 Banned
    DrewInWisconsin, Oaf
    @DrewInWisconsin

    Fritz (View Comment):
    If the value of the asset falls year over year, however, there is no refund, just a slightly lower tax bill. Maybe.

    Ha! Not in this market!

     

    • #11
  12. Arahant Member
    Arahant
    @Arahant

    Red Herring (View Comment):
    Too many zeros 

    If you mean in what Congress is spending, I agree.

    • #12
  13. Arahant Member
    Arahant
    @Arahant

    Susan Quinn (View Comment):

    I have now corrected all the errors in the opening of my post, and I apologize for my carelessness. I knew the facts, but…

    Relax. We all do it sometimes. Besides, now you know we were awake and reading it.

    • #13
  14. Susan Quinn Member
    Susan Quinn
    @SusanQuinn

    Arahant (View Comment):

    Susan Quinn (View Comment):

    I have now corrected all the errors in the opening of my post, and I apologize for my carelessness. I knew the facts, but…

    Relax. We all do it sometimes. Besides, now you know we were awake and reading it.

    And I am in your debt! (Pun intended)

    • #14
  15. Randy Weivoda Moderator
    Randy Weivoda
    @RandyWeivoda

    I just don’t know if the people floating this policy are insane or if they know that it would be disastrous, but are counting on Congress to not pass it.  Then they can look like the heroes to the economic illiterates of the country, without actually strangling the economy.  Devious or insane, devious or insane, I truly don’t know.

    • #15
  16. Susan Quinn Member
    Susan Quinn
    @SusanQuinn

    Fritz (View Comment):
    The property tax system already levies taxes on unrealized gain. The job of the assessor is to determine what a given piece of property is worth, and then applies the local jurisdictions’ tax rates to that value. If the value of the asset falls year over year, however, there is no refund, just a slightly lower tax bill. Maybe

    Is there anywhere house values are dropping? 

    • #16
  17. Arahant Member
    Arahant
    @Arahant

    Randy Weivoda (View Comment):
    Devious or insane, devious or insane, I truly don’t know.

    Why not both?

    • #17
  18. Susan Quinn Member
    Susan Quinn
    @SusanQuinn

    Randy Weivoda (View Comment):

    I just don’t know if the people floating this policy are insane or if they know that it would be disastrous, but are counting on Congress to not pass it. Then they can look like the heroes to the economic illiterates of the country, without actually strangling the economy. Devious or insane, devious or insane, I truly don’t know.

    An impossible choice, Randy. I agree!

    • #18
  19. Randy Weivoda Moderator
    Randy Weivoda
    @RandyWeivoda

    Maybe they should do this as a test program before rolling it out nationwide.  All members of Congress and White House employees (including the president) would be subject to this new taxation, but the rest of the taxpayers would not.  If after four years they still think it is a good idea, we’ll talk.

    • #19
  20. DonG (CAGW is a Scam) Coolidge
    DonG (CAGW is a Scam)
    @DonG

    David Foster (View Comment):

    Capital gains tax rates are misleading in a period of inflation. You are paying taxes on ‘gains’ due to inflation as well as on your real gains, so the effective tax rate in real (inflation-adjusted) terms is higher than the nominal tax rate.

     

    As a reminder, capital gains apply to selling your home.  There is an exclusion of $500,000 for couples no matter how long you have owned your home or how much inflation has devalued the dollar.   If you live in a state with high property taxes for 20 years, the capital gains plus property taxes could exceed the value of your home.

    • #20
  21. Jim McConnell Member
    Jim McConnell
    @JimMcConnell

    DrewInWisconsin, Oaf (View Comment):

    And consider how much of our income is confiscated to be sent to foreign countries. Does any other nation take so much from its own citizens to distribute to non-citizens?

    The American Citizen is the ATM of the entire world.

    (And yes, the bulk of the tax burden falls on and continues to fall on the dwindling middle class.)

    Susan Quinn: Although the administration is making these proposals, Congress—first the House, and then the Senate—are the only ones who can pass tax legislation, with the president approving it. We have seen a number of irresponsible Executive Actions during this administration, and we may have reason to be concerned that the administration will use EAs to enact these “rules.”

    I’m sure Congress will pass a responsible budget that will not require any increase in taxes.

    Ha ha ha. I could barely finish typing that I was laughing so hard.

     

    Yes. With the government, when there is a deficit no thought is given to cutting costs, it’s always raise taxes. That seems to be the universal thought of politicians and bureaucrats.

    • #21
  22. Jim McConnell Member
    Jim McConnell
    @JimMcConnell

    Randy Weivoda (View Comment):

    Maybe they should do this as a test program before rolling it out nationwide. All members of Congress and White House employees (including the president) would be subject to this new taxation, but the rest of the taxpayers would not. If after four years they still think it is a good idea, we’ll talk.

    Novel idea, but I don’t really think…

    • #22
  23. Full Size Tabby Member
    Full Size Tabby
    @FullSizeTabby

    Randy Weivoda (View Comment):

    I just don’t know if the people floating this policy are insane or if they know that it would be disastrous, but are counting on Congress to not pass it. Then they can look like the heroes to the economic illiterates of the country, without actually strangling the economy. Devious or insane, devious or insane, I truly don’t know.

    The Biden administration’s proposal is absolutely insane. So insane it’s hard to believe the administration is serious, but then we’ve seen so much insanity out of the Biden administration that this particular insanity becomes easier to believe.

    I’m not smart enough to follow the effects on inflation or monetary theory or such global effects.

    But, I have worked in business many years, and know that a 44% capital gains tax will significantly reduce (if not basically eliminate) business investment, and particularly business creation. Why should someone spend years of work building a business only to have essentially half of it taken away should it become successful? Why should an investor risk his money on a long-term business prospect knowing that the investor will never see more than half of the business success?

    Bad as the proposed 44% rate is, the idea of taxing unrealized gains is the worst aspect of the proposal. Just the proposal of it contributes to trying to “normalize” an insane idea. (Yes, there are significant legal objections to the idea, but legality clearly is not a concern for Democrats, so I’m focusing on more basic idiocy.)

    Establishing value every year would be very difficult. The legal system spends years arguing over valuations of assets in the estates of deceased people – a tiny fraction of the assets a system of taxing unrealized gains for all assets would require every year. Annual valuation of all assets would be an overwhelmingly difficult task.

    Assets go up and down in value. Most assets are not publicly traded stocks and bonds. Even the relatively simple world of residential real estate shows this up and down nature of markets and the difficulties of establishing valuation. Never mind the more complicated worlds of farming or industrial real estate (more unique properties), ongoing businesses, privately held businesses, intangible property (trademarks (brands), patents, copyrights, etc.), art, collectable things, and a bunch of things beyond my imagination. That which looks like a spectacular growth in value one year may evaporate the next year.

    The liquidity problem for paying a tax on unrealized gain is enormous. Again, most assets are not publicly traded stocks and bonds that can be sold at will in fractions. For many families all or most of the family assets are actually a single family business that cannot easily be divided (a store, a motel, a manufacturing or repair plant and business, a farm, etc.) Taking the farm example, if the value of the land a family owns and farms increases by 20%, are they expected to sell 10% of their land to pay an annual “capital gains tax”? How does a family that owns a motel pay the tax when the land under the motel increases in value? It’s not like they can sell off a certain number of the motel’s rooms to get cash to pay a tax on the increased value of the land.

    A 44% tax on capital gains is insane if you want a growing economy.

    An annual tax on unrealized capital gains is even more insane if you want a functioning tax system.

    • #23
  24. DrewInWisconsin, Oaf 🚫 Banned
    DrewInWisconsin, Oaf
    @DrewInWisconsin

    Now consider this for your home. The market value of your house skyrockets because of inflation. If you don’t sell, you have an “unrealized gain” and will be taxed accordingly.

    • #24
  25. E. Kent Golding Moderator
    E. Kent Golding
    @EKentGolding

    It is the actual government spending that is the greater problem, not the deficit or the debt.   Almost by definition, individuals or free associations would not spend their money where the government does.   Government spending does not benefit from the wisdom of competitive markets;  people do not spend their own money as carelessly and stupidly as the government spends someone else’s money.   Government spending diverts money from beneficial private spending to wasteful government spending.  That is where the real damage is.

    • #25
  26. Susan Quinn Member
    Susan Quinn
    @SusanQuinn

    Full Size Tabby (View Comment):
    can

    I’m becoming convinced they are trying to drive everyone into poverty: individuals, small businesses and corporations. Do they really believe they can put all of us on the dole?

    • #26
  27. DrewInWisconsin, Oaf 🚫 Banned
    DrewInWisconsin, Oaf
    @DrewInWisconsin

    Susan Quinn (View Comment):

    Full Size Tabby (View Comment):
    can

    I’m becoming convinced they are trying to drive everyone into poverty: individuals, small businesses and corporations. Do they really believe they can put all of us on the dole?

    Cloward and Piven not available for comment.

    (Well, Richard Cloward is dead. But Frances Fox Piven is still alive.)

    • #27
  28. Fritz Coolidge
    Fritz
    @Fritz

    Susan Quinn (View Comment):

    Fritz (View Comment):
    The property tax system already levies taxes on unrealized gain. The job of the assessor is to determine what a given piece of property is worth, and then applies the local jurisdictions’ tax rates to that value. If the value of the asset falls year over year, however, there is no refund, just a slightly lower tax bill. Maybe

    Is there anywhere house values are dropping?

    The values around my neck of the woods did indeed drop for a couple years following the 2008-09 recession, so it can happen. But it wasn’t long before higher values returned and then resumed increases. 

    • #28
  29. Mark Camp Member
    Mark Camp
    @MarkCamp

    If you want to quantify the burden of government finances on the public in a rational and meaningful way, the best figure to use is the ratio of government spending to total spending in a given period, such as a year.

    Why?

    Because that ratio tells you what proportion of the limited number of hours of life that God gave us — time which we used up and will never get back — producing goods used by the Government to satisfy its wants, compared to the time we spent producing goods to satisfy our own wants.

    And because it is independent of the “inflation rate” regardless of how well or badly that is defined. Why doesn’t inflation have any effect?  Because both you and the Government are spending money in the same time period.

    Let’s take an example.

    In the first case, you spent

    — 40% of your life producing goods that the government used to satisfy its wants, and

    60% of your life producing goods that you used to satisfy your own wants

    In the second case, you spent

    — only 39% of your life producing goods that the government used to satisfy its wants, and

    61% producing goods that you used to satisfy your own wants

    It’s obvious, right?  In the first case the burden of government finance on you is greater. 

    Does that make sense?

    Now, how would it change your answer if in the first case, your taxes were lower? Think about it carefully. Less time producing wealth for yourself, more producing wealth for them, but fewer dollars given to them.

    I think you will agree that it would not affect your answer one iota.

    So it is irrational to measure the burden by measuring the number of dollars of tax.  The same-year spending ratio (by_politicians divided by by_everyone)  tells you all you can know, and the amount of tax has no effect on your conclusion.

    Now re-do the experiment using other candidate measures:

    —government spending amount

    —government  deficits

    —government debt

    —government money creation

    —government-created price inflation.

    You should discover that each of these measures fails in the same way.

    A continued misunderstanding of the way to measure problem will inevitably lead us voters to leave the source of the problem in place, and continue to feed and grow it, and apply only falsely advertised fixes that make the problem worse.

    • #29
  30. Randy Weivoda Moderator
    Randy Weivoda
    @RandyWeivoda

    Full Size Tabby (View Comment):
    But, I have worked in business many years, and know that a 44% capital gains tax will significantly reduce (if not basically eliminate) business investment, and particularly business creation. Why should someone spend years of work building a business only to have essentially half of it taken away should it become successful? Why should an investor risk his money on a long-term business prospect knowing that the investor will never see more than half of the business success?

    Your entire comment is fantastic, Tabby, but I want to focus on this part of it.  If I am an investor, I am looking at different things I can invest in.  Some are mature, stable businesses that are unlikely to fail, but are also unlikely to grow very much.  Others are newer businesses that might grow a lot but are more likely to fail.  If the government is going to take a whole bunch of any profits I make, that changes the calculation, doesn’t it?  So the low-return safe bet is still a safe bet, but the high-risk/high-reward company is still high-risk, but the reward not so high anymore.  It seems to me that having very high capital gains taxes would result in stifling new, innovative companies.  Why take the risk if Uncle Sam will take such a large piece of the reward?

    • #30
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