President Biden’s big social spending bill will cost a lot of money. The current plan to squeeze that money from the very wealthy, through a change in the tax code that would reinvent how the government taxes capital gains.
The idea is to tax unrealized capital gains, i.e. to tax people that don't sell their stock. Treasury Secretary Janet Yellen said in an appearance Sunday on CNN, “It would help get at capital gains, which are an extraordinarily large part of the incomes of the wealthiest individuals, and right now escape taxation.” but I think it won't work, probably.
The idea is to tax unrealized capital gains, i.e. to tax people that don't sell their stock. Treasury Secretary Janet Yellen said in an appearance Sunday on CNN, “It would help get at capital gains, which are an extraordinarily large part of the incomes of the wealthiest individuals, and right now escape taxation.” but I think it won't work, probably.
Hey this is tom, and i got ta be honest with you. This is gon na, be an extremely uber nerdy video. So unless you care about taxation and stuff like macroeconomics, this video is probably not for you. Wait until tomorrow.
I'm gon na make some more funny. Videos, but this video is something i'm passionate about. I specifically have a lot of passion towards tax. I know this sounds weird, but i think tax drives the universe.
Now you may disagree, you may agree, i don't care, that's what i think, and yesterday i saw secretary yellen by the way. I don't think we can say secretary anymore, flight attendant yellen, don't know what to call her go to national tv and talk about the latest plan from the house of biden and crew. Basically, taxing unrealized capital gains. Now, in this interview, of course, which i'm going to show clips of in a second, she talked about why this would only apply to the 700 or so billionaires the us actually has and will not apply to any of you regular jewels and in this video i'll Show you why you should care about this, even if you don't make a million dollars per year, even if you're, a regular guy or girl or a horse.
You should care about this and in a second i'll, show you why, but first of all, as always, don't click nothing, don't smash. Nothing don't subscribe to! Nothing! Just listen to me because this is actually very interesting and i'm way more excited about you. Listening to me than clicking some vanity number buttons, i don't care about that. So the first thing i want to do here is actually explain, what's being proposed here and in case you're, a tax nerd like me, and you know exactly what unrealized capital gains taxation is.
I'm going to put a time step for you to skip ahead, but you might want to stick around with this, because i don't script these, so there might be a few funny moments in the next 30 seconds. So consider this. So the proposal here and i'm really struggling to come up with a country that does anything similar. I think the us might be the first western country to actually propose something like this.
The proposal, quite simply, is to tax people on unrealized capital gains. A capital gain is when you have a share and that share appreciates in price, and then you actually have a benefit right. So if you bought a share of apple, you bought it at a hundred. Two years later, it's worth 150.
You made 50. This is your capital gains and in this current system, unless you decide to sell it, you don't have to pay tax because for one simple reason you don't meet the money, it's a very, very basic principle in every taxation system that until you meet the money until You realize you shouldn't be paying tax, because where would you pay the tax from how could they tax you on something you haven't sold? Yet that's ridiculous, but this is exactly what's being proposed here, basically to come with people that have unrealized capital gains basically shares that have appreciated in value but have not been sold yet and collect the tax today before they even sell. Now this proposal is not anything new. This has been in the works since 1957.: they're, not revolutionary they're, not cutting edge. A lot of people have been talking about this since the 50s, so this is just bringing back old stuff. You know how game developers and video games, they come up with new versions every year and they just circulate the same features. Take it out, bring it back three years later, shout out to you ea, sports and madden by the way. But basically, this is just a regurgitated recycled proposal that has been circling around for decades now.
The problem with this proposal is that it ignores the physical sale, the realization event and applies a tax liability on people who have not received any cash and much bigger money is actually in that than taxing realizations. Because if you look at the stock market, you probably have about five percent of realizations versus ninety-five percent of unrealized gains sitting in the market. That's just normal and the vitamin physician obviously wrote a lot of checks. They have a lot of explaining to do and they need money today and what's better than to tap into into this 95 and collect it from there.
And yes, janet ellen, went on tv and said that this would not apply to regular folks only to uber extra rich mother lovers with a lot of money and what she's actually advocating. Basically, the pr move, she's saying well fighting for the poor against the rich yeah sure. Basically, the claim that she made was that they're trying to fight the step-up basis plan. Well, if the step-up basis pass through assets, sounds like a medical procedure to you and a painful one hold on i'll, explain it in a second, so she's, claiming that they're fighting the current structure of the u.s estate and gift tax.
Basically, if you die in the u.s, the people who inherit your property pay 40 of tax. Now, that's not entirely true, because the rich politicians made sure to put in an 11.5 million dollar exemption so up to 11.5 million passes through to your heirs. Without any taxation. Lovely but wait there's more they're really rich.
They don't even do that. They set up trusts and in these trusts, which are set up before they die the assets, don't change hands. So when the person has their assets in a trust and that person passes away the people who actually become beneficiaries of that trust, nothing really happens. So there's no taxation, even above 11.5 million dollars.
So if you're wondering well, the rich mother lovers probably pay if they have more than 11.5 million of exemption right, they pay 40. No, they don't. If you're rich, you don't pay, that's the way. Hey so basically, janet yellen is saying well fighting this we're fighting this through taxations of unrealized gains we're going to get these rich mother lovers right. Well, i don't think that's the reason. She's doing it because this basically updating these tax codes to tax and realized gains is not really going to help against these rich because they have the exemption. They have the trust. I think that the real reason is because they need cash today, if janet ellen basically fixes the problem by closing the loophole.
Basically, eliminating this rule no more step up in basis, you pay from the first dollar and she basically makes law that you don't get to enjoy this even in a trust structure, basically eliminate the loopholes, eliminate trust as an exemption from a state tax and eliminate step Basis from the first dollar, you need to pay estate tax. Why should you not? They can do it and solve the problem, but that won't give them money today, because janet yellen and biden are broke. They need money right now. They need cash, and the only way to get this cash is to come up with a scheme where it seems like they're trying to fight the rich just to tax and get some cash today.
So solving the problem is not what they're concerned about getting cash today is what is but at this point, why should you care the grocery store owner the people who pay a lot of tax they pay for gasoline? You pay sales tax. You pay a whole of income tax. Why should you care about these rich? Well, here's the reason, because, what's going to happen right now, is going to be a very slippery slope. Once the u.s tax system accept the principle of taxing unrealized gains, it's going to start with the 700 or so billionaires, but then whenever they need money next, you know what they're going to do they're going to lower the ceiling they're going to say well now only For hundreds of millionaires well now, only if you have about 50 million assets and it's going to slowly down as long as they need money and what does government need every year more and more they're like the kid who won't move out at 40., they keep asking You for cash, that's the way the government work and trust me once they put in that clause in there lowering the ceiling is gon na be much easier than getting this to pass through now.
The other problem is, is the question i want to ask: do you think they're going to give you losses, unrealized losses? Let's say you bought a stock in your bank holder? Should you get this unrealized loss, there's no way jose you're getting that. So it's going to be completely uneven. Taxing unrealist profits, not giving you unrealized losses, because you know what when they came for the billionaires, i didn't speak when they came for the millionaires. I didn't speak when they came for me.
There was no millionaires and billionaires to speak for me. So basically, in my opinion, it's a very slippery slope, but hey this is just my opinion, might be. Inaccurate might be wrong, might be the ramblings of a madman. You got to do in research, let me know below what you guys think and a huge shout out to the channel members and patrons you guys are rocking. I love you see you tomorrow.
Tom, there has been for years a similar system in the US: retirement accounts. If you have a 401k or an IRA you are subject to Required Minimum Distributions after a particular age. That means you SELL, and pay taxes. In other words it is a tax on unrealized capital gains. The RMD's increase so that you need to empty your account by an age determined by actuarial statistics. (Not certain how this works)
I hope you Tom, are wrong and if you are right this will discourage any long term investments. We will all be day traders. God help us because socialism will be the next irrational step..
yeah this makes total sense it would actually be anti investor, even anti retail investor, because you would go through forced liquidation
How would they ever be able to audit unrealized gains. Seems like an impossible job, not to mention a horrible idea that only far left loons could come up with. Can I write off unrealized losses as well? lol
Sorry for my typing error in my comment just now.
I think taxing unrealized gains as real gains undermines any government that says it has the authority to make citizens believe a maybe thing (unrealized gain) is the same thing as a real thing (realized gain). A government that does that destroys its credibility in the eyes of its public.
Taxation of unrealized gains is based on the assumption that unrealized gains are real gains. The reasoning then follows that real taxes, therefore, must equally apply to bothshould be subject to the same rulesreal taxes are inherently similar categories of description. However, the difference between a maybe thing and a sure thing is obvious. These categories are not the same thing, by any stretch of similarity. To treat them as the same requires an authority deeming them the same that is mentally approved by those subject to the deeming authority.
Since it's a lot easier to wind and existing screw than break in a new one, any tax that is implemented will be milked for all it's worth, ALWAYS. Thats why whenever there is talk about new taxes you should consider them being applied to you as well and act accordingly.
That I pay tax on capital gains on shares but cannot deduct losses where I lose is completely unfair.
I should pay tax on the net gain/loss on my trading portfolio during that financial year.
The way it is , is that Uncle Sam can't lose, just me the schmuck.
Where im from we got something similar if i understand you correctly.
Normal Account taxes are = 27% up to 56,000 DKK (aprox 9,000$) (realised gains)
after that you pay 42% of Realised gains.
We then have a "Stock Savings acc" directly translated, in which we can put up to a max of 19,000$ give or take a few 100…
On that account we pay 17% taxes of Realised and unrealised gains, but that Account is taxed Yearly (Jan 1) So the idea is we pay lower taxes on that special account to give an edge for the beginners in the market.
I should figure this out but in theory, i could own a stock that had a pump and dump between Dec31 and Jan 1. That would result in a massive Tax bill on the unrealised gains.
Im not sure if something prevents such an incident, so as i said im gonna have to look into it since i do own a potential Rocket or 2 :D.
What are the other side effects? If someone owns a controlling stake in a company, is it possible that they may have to sell shares to pay unrealized gains? Could this change result in people having to sell enough shares that they lose that controlling interest?
If this doesn't wake up all Democrats to what the hell they are voting for then I don't' know what will wake them up. This is the most stupidest crap I have ever heard of.
Isn't this the way that mutual fund gains are taxed right now? Doesn't seem like much different.
The problem with unrealized gains is that the large gains are used as collateral for loans, off which the billionaires live very luxuriously, while paying no tax at all. The billionaires can spend the rest of their lives that way, and never pay a dime of tax! Then they pass their estate to their do-nothing lazy offspring with no inheritance tax! And the kids just repeat the cycle.
If you want to return society to a system of inherited aristocracy and inherited serfdom, failing to collect tax on unrealized gains is a great way to do it.
Why not just have DC print everyone a check for $1,000,000 each year? That way we're ALL rich ! ! ! ! !
Remember when they came up with the law to seize the property of drug kingpins? It was supposed to be for the big guys. What happened was they used the law for the kids on the street selling small amounts of weed (now legal in many States) and took their property then sold it for a $1 to property developers who made billions. Yep thats what they will do.
Naturally they just wang to collect more money to misspend more money, they they are happy, until… oh no let's back to start. I hope this bill never passes.
Well, if they want to tax unrealized capital gains, what if that tax will be paid not with money but with stock? It will be funny to have IRS the second biggest shareholder at Tesla, Amazon, etc. And of course this tax proposal is a stupid/bad ideea, as Tom explained very well.
i think stock is capital asset so obviously it should have a capital gains tax just like all other forms of assets. We tax on land value, house value, luxury cars. Those aren't cash either, and they also increase in value and those increases are also taxed. Not sure why people feel like stocks are just too special a kind of value asset
US is getting closer to being a communist state every day. This is actually the first time in my life that I'm glad that I'm not a US citizen.
Totally agree on virtually all of your points. In particular, taxing unrealized gains is lunacy. Simply eliminate current loopholes. Raising the top tax rate for extremely high incomes would work. That's actually what Biden ran on and subsequently won the election. Unfortunately the congress is dysfunctional.
What’s it going to take for people to realize they’re trying to intentionally destroy the entire financial system, economy and every other system in the US.
It’s not about doing the best thing or the right thing, quite the opposite.
Because government is broke and they are trying to screw anyone they can to get the money. They will find a way. That’s why I am moving to Montana from CA, sick of this state.
Australia does this. This may explain why Australians have more of their net worth in property than stocks.
This is already integrated in Denmark when you buy an ETF. you Will pay for the gain Even though you haven't sold, every year.
HI Tom, I'm your subscriber from Malaysia. Good work there. Just let you know that your video sound quality is not as 'loud' as before. Is this because that you're not wearing the mic?
Not any different than the property tax I pay on my house every year. While my main store of savings is taxed theirs is tax free. How is this fair?
Could you imagine when it gets to the point where they tax you on your unrealized real estate gains? You could be just barely scrapping by and finally pay off your house looking to enjoy life and suddenly the market around you goes insane and you suddenly owe the government money just because you "could" sell for a massive 4x profit? This is insane, everyday the US gov brings us closer to the "great reset" (now called build back better because there was so much backlash) where you will own nothing and be happy.
It effects 700 people today, 7,000 people tomorrow and 7 million people next year. Our government is dangerous.
Another problem is it will force people to realize gains. Might as well secure your gains if you're going to be taxed on them. That discourages long term investing.
just by the way Tom this is off topic but this video just made me realize you truly are one of the only genuine financial influencers and I just wanna say thanks for the real content because theres so much out there thats specifically made to lead people in the wrong directions and you are like a beacon of hope guiding us.
Love to see more responsible people stepping up and helping people learn finances.