No one is saying Musk literally can't afford to pay taxes. He can borrow against his ownership. But if you have a company that goes from 0 -> 100, and you get taxed 35% on that, and then the company goes from 100 -> 50, you kind of got screwed. That $100 is a made-up number.
Suppose there is a company with 200 shares, half of which you own. The last trade price was $1 per share, meaning you have $100. But you can't necessarily dump your shares for $100 because the $1 was based off the last trade. So on the margin you can sell a share for $1, but you won't necessarily be able to sell all 100 shares for $100.
Imagine you own a home that went from being worth $1 million to $2 million. Did you MAKE $1 million? Should you pay taxes on that delta as soon as the home's value became $2 million? It makes more sense to wait until you sell it and pay taxes on the net you made. Otherwise it's more complicated and you could end up paying taxes on $1 million when you end up selling it for a lot less. You could have a tax credit I guess but you're unlikely to have the IRS cut you a check for the money you paid that turned out to never be actualized.
Yes, taxing unrealized gains as if they were income would be silly.
Most proposals to tax giant piles of wealth in the market look nothing like what you've described. A wealth tax is more like: pay 1% per year on the current market value of your portfolio, if that amount is over $100 million.
Money attracts money. Wealth taxes are an attempt for reverse that effect and force some of that money to trickle down.
That said, any attempt to implement a wealth tax will probably be struck down as unconstitutional because moneyed interests want it to be declared so.
> Most proposals to tax giant piles of wealth in the market look nothing like what you've described
Wealth tax is different and I think it makes more sense compared to unrealized capital gains. But its not true no one is proposing an unrealized capital gains tax
> Biden’s fiscal 2023 budget request released Monday would impose a 20% minimum tax on the unrealized capital gains for households worth at least $100 million.
California famously insulates people from additional property tax burden on highly-appreciated real estate - and it's clearly still a popular policy among the people benefiting, but it gets a lot less defense from people who don't own those houses than the status quo here gets from people who aren't stock-based-billionaires.
Wealth is closely correlated enough to power that it's worth encouraging people to turn those on-paper gains into liquid forms - even if only to avoid "losing" if the stock then slides back from 100 -> 50. Especially since he can leverage it to spend in other ways!
Doesn’t this already happen to some extent with property taxes? You pay tax on the appraised value of the property. If it later goes down, you just pay less from that point onward. It doesn’t seem like a problem.
To me, taxing wealth and only wealth seems like the most straightforward route to a truly progressive tax system. That’s not to say it’s simple or straightforward in an absolute sense, but neither is taxing income, is it?
At a high level, taxing wealth instead of income or transactions ensures that rich people are paying their share, while maximizing upward mobility so that people can become rich more easily. Think about how much easier it would be to become wealthy without income taxes, sales taxes, property taxes, taxes on corporate profits, etc. etc.
This is what we should optimize for imho: making it as easy as possible to become wealthy. Sure, there details to figure out, as with any approach, and maybe some rich people will face some difficult choices or be forced to sell assets; I’m ok with that and it seems well worth the tradeoff.
Wealth taxes and land value taxes seem like the most sane way to fund social programs. Extract a bit of value from the people who have runaway wealth (but not so much that their wealth can't continue to grow), and use it to help the economically downtrodden become more upwardly mobile (education, healthcare, basic social safety nets.)
Pair it with a hefty pigeuvian carbon tax and you could probably do away with income taxes entirely.
(A nondistortionary VAT to replace sales taxes and corporate income taxes would be nice as well.)
Suppose there is a company with 200 shares, half of which you own. The last trade price was $1 per share, meaning you have $100. But you can't necessarily dump your shares for $100 because the $1 was based off the last trade. So on the margin you can sell a share for $1, but you won't necessarily be able to sell all 100 shares for $100.
Imagine you own a home that went from being worth $1 million to $2 million. Did you MAKE $1 million? Should you pay taxes on that delta as soon as the home's value became $2 million? It makes more sense to wait until you sell it and pay taxes on the net you made. Otherwise it's more complicated and you could end up paying taxes on $1 million when you end up selling it for a lot less. You could have a tax credit I guess but you're unlikely to have the IRS cut you a check for the money you paid that turned out to never be actualized.