Despite Treasury secretary’s denials, Democrats are pushing a ‘wealth’ tax
For a master class in doublespeak — the use of banal-sounding and euphemistic language designed mainly to obscure the facts — it’s hard to beat Treasury Secretary Janet Yellen’s Oct. 24 CNN interview. Desperate to find new revenues to fund their $1.85 trillion package of social welfare and climate change-related spending, the Biden administration and its congressional allies have concocted a means to squeeze the nation’s billionaires. Their latest plan would be to tax them on something known as “unrealized gains.”
Speaking in a bureaucratic manner, Yellen assured the public that this is not a “wealth tax” — the controversial effort to tax the accumulated assets of Americans. Instead, this plan merely is “a tax on unrealized capital gains on liquid assets held by extremely wealthy individuals,” who “escape taxation until they are realized.”
Well, escaping taxation until it is “realized” simply means avoiding taxes on profits that have not yet come into existence — no matter what Orwellian phrase one uses to describe it. Although the tax hike would apply only to the nation’s approximately 700 billionaires, the concept is easy to understand if we apply it more broadly.
Let’s say you bought stocks in 2010 for $50,000 and they now are worth $100,000, even though you have no interest in selling them. The IRS would calculate the current value of the investment and tax you for the theoretical $50,000 paper gain. You’d probably have to sell them off to pay the tax assessment.
Likewise, imagine if the federal government could tax the unrealized gains of your home. Investments go up (and sometimes down) in value over the course of the years, and investors often make decisions based on long-term calculations. This frustrates progressive politicians, who view it as a tax dodge whenever people keep their earnings — real or on paper — out of the hands of government.
“In effect, a person can accrue capital gains indefinitely, on a vast scale, while owing no tax other than on dividends or other cash distributions from those assets,” The New York Times writer Neil Irwin explained. But to most of us, that’s a good thing.
One should not be taxed for profits that haven’t yet been realized, and the nation should encourage more investment given that these companies — which often began as startups — create the jobs and economic growth that power the economy. They already pay their fair share in taxes.
The government doesn’t create wealth. Despite the class-envy outrage against billionaires, the debt-laden federal government could only operate for six months if it confiscated the wealth of every American billionaire, as Reason magazine reported. The current tax plan might cover the latest spending spree, but it won’t bail out the feds for very long.
By the way, the top 1% of Americans pay 40% of the nation’s income taxes. Whenever the government raises taxes, it collects only a declining percentage of the hike as wealthy people reduce their job-creating investments or embrace tax-avoidance strategies.
Instead of concocting clever ways to grab Americans’ assets, the Biden administration needs to take aim at out-of-control federal spending. The feds would have to grab $69,000 in real and unrealized dollars from every one of us to cover the $29 trillion debt. We’d love to hear the doublespeak Yellen might use to explain that away.