Yeah, you don’t magically have to pay income tax on unrealized gains. You pay income tax on income. That’s why it’s called income tax.
This was a hypothetical, because thread OP was suggesting a tax on unrealized gains. I was just trying to explain the possible consequences of such a tax.
In order to tax unrealized gains, they WOULD have to be treated as income, even though they really aren’t, because if you didn’t sell an asset, you didn’t make any money. Unless you rented it out, of course, but rental income is already treated as such.
As far as stock or bonds go, it’s the same. Imagine you buy some stock to hold for the long term. Well, if it goes up, and there’s a tax on unrealized gains, you’d be owing taxes on every dollar it has gone up from the purchase price, EVERY YEAR that you hold it. It would almost be like having to pay rent on something you already own, and of course that would make long term investing extremely unattractive, not to mention it would basically eliminate any chance that normal people have at building any wealth whatsoever.
Also, if long term investing becomes unattractive, that means people would likely just try to sell everything the same year they bought it, meaning there’ll be a lot more short term trading (and thus rampant speculation) going on. Even if you put generous exemptions in place to avoid penalizing the lower and middle classes with this, taxing unrealized gains would lead the super rich to engage in more short term speculation, which means the markets would become much more unstable. It’s literally the dumbest idea anyone could think of unless their goal is to just cause as much pain and chaos as possible.
This was a hypothetical, because thread OP was suggesting a tax on unrealized gains. I was just trying to explain the possible consequences of such a tax.
In order to tax unrealized gains, they WOULD have to be treated as income, even though they really aren’t, because if you didn’t sell an asset, you didn’t make any money. Unless you rented it out, of course, but rental income is already treated as such.
As far as stock or bonds go, it’s the same. Imagine you buy some stock to hold for the long term. Well, if it goes up, and there’s a tax on unrealized gains, you’d be owing taxes on every dollar it has gone up from the purchase price, EVERY YEAR that you hold it. It would almost be like having to pay rent on something you already own, and of course that would make long term investing extremely unattractive, not to mention it would basically eliminate any chance that normal people have at building any wealth whatsoever.
Also, if long term investing becomes unattractive, that means people would likely just try to sell everything the same year they bought it, meaning there’ll be a lot more short term trading (and thus rampant speculation) going on. Even if you put generous exemptions in place to avoid penalizing the lower and middle classes with this, taxing unrealized gains would lead the super rich to engage in more short term speculation, which means the markets would become much more unstable. It’s literally the dumbest idea anyone could think of unless their goal is to just cause as much pain and chaos as possible.