(National) Taxation Solution(s) Discussion 2022

Reagan was a wage earner. The “ultrarich” get their incomes from capital. I’m in favor of higher taxes for the ultrarich, but I don’t expect any behavior changes caused by higher taxes which would increase before tax income for the rest of us.

I think we could do fine with a progressive income tax, unless your goal is to just eliminate billionaires as a class.

One key component for the income tax solution is taxing unrealized gains.

That is not my goal, nor should it be the goal of a wealth tax IMO.

Correct. We are now talking about two different problems. 1- is the nature of the highest marginal tax bracket and 2- is taxing capital gains differently than wage income.

So to address your point, we can add a new tax bracket at $10M that raises the marginal tax rate to 90% if we wanted to. This wouldn’t affect the before tax income for the rest of us and would affect the high income earners.

My personal stance is that the highest marginal tax rate is too low for a top tax bracket and I think we should tax capital gains as normal income.

I also don’t think this is necessary. As long as we stop teasing the idea of eliminating the estate tax. That money will get taxed at some point, I don’t care when it is really.

However, there is the issue that people take out loans on these unrealized capital gains as a way to play games with income taxes. This shouldn’t be allowed. I’m not smart enough on this topic to know how we’d do it though.

I have no problem with NOT taxing unrealized gains, but the step up in tax basis on death should be eliminated.

I think timing matters a lot when we are talking about money payments.
I don’t recall stories about how Sam Walton’s family wealth shrunk dramatically after they paid estate taxes or capital gains taxes on his death.
I think that, given time for planning, wealth retention firms can devise strategies to avoid most taxes on transfers. The quote below is about estate taxes, I expect there are also strategies for cap gains taxes. (Note that the quote is from Goldman Sachs’ former COO. I expect he has a very good idea what their private wealth management unit accomplishes.)
Taxing unrealized gains produces money now.

There is a step up in basis when many assets are passed to my heirs. So if I take out loans against existing assets to use for whatever without paying taxes. When I die the estate pays off the loan with no income tax paid on the money. Whatever is left is passed to my heirs without the requirement to pay taxes on the funds because their taxable basis is the value when it is received. So it is as simple as eliminating the step up in non-taxable basis in the estate tax (this is extremely simplified from what actually happens but illustrates the point of basically what happens).