U.S. Senator Ron Wyden, at the U.S. Capitol in Washington, DC on August 16, 2018. USDA Photo by Lance Cheung.
In what can only be described as a new level of idiocy, Democrats want to tax investors on unrealized gains each year. Yes, you read that correctly, they want to tax Americans on money that they’ve never actually had. The Wall Street Journal’s Gabriel Rubin and Richard Rubin report:
The top Democrat on the Senate’s tax-writing committee proposed taxing unrealized gains in investment assets every year at the same rates as other income, offering an idea that would transform how the U.S. taxes the wealthiest people.
The proposal from Sen. Ron Wyden of Oregon is the latest plan from Democratic lawmakers and presidential candidates for boosting taxes on the wealthy to address economic inequality and provide funding for their policy agenda. While this specific proposal has little chance of becoming law soon, such ideas could quickly gain momentum if the party succeeds in next year’s elections.
Under Mr. Wyden’s concept, capital gains would be taxed annually based on how much assets have gained in value. Now, by contrast, gains are taxed only when assets are sold and at a top rate of 23.8% instead of 37% for ordinary income.
“It would be a huge change,” said Lily Batchelder, who was a tax-policy aide to President Obama. “It would be a really big shift in our income-tax system.”
Mr. Wyden’s tax differs from Sen. Elizabeth Warren’s wealth tax and Bernie Sanders’ higher estate tax. Like those plans, however, Mr. Wyden’s concept would present logistical challenges. He would need to figure out how to value complex assets, handle declines in value, deal with people without enough cash to pay the tax and address illiquid investments such as closely held businesses and real estate.
This mark-to-market tax concept, long discussed by academics and rarely alive in the political sphere, could raise substantial money. A similar proposal from Eric Toder of the Urban Institute and Alan Viard of the American Enterprise Institute would generate an estimated $125 billion in 2025 alone, according to their 2016 paper. That plan was focused on publicly traded assets and applied a different rule to closely held businesses.
The proposal announced Tuesday “eliminates serious loopholes that allow some to pay a lower rate than wage earners, to delay their taxes indefinitely, and in some cases, to avoid paying tax at all,” Mr. Wyden said in a statement.
Republicans, in contrast, have fought to lower capital-gains taxes.
Sen. Pat Toomey (R., Pa.) said capital gains get preferential rates now for several reasons, including to mitigate inflation. Under Mr. Wyden’s proposal, he said, someone could pay taxes on an investment one year as it rises, even if the investment later fails. Mr. Toomey said the plan would go nowhere as long as Republicans control one part of the government.
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