Oct 27, 2021

What Biden's Unrealized Capital Gains Tax Really Means to America


If you haven't heard about the proposed "Unrealized Capital Gains Tax," then get ready for a new concept from the old "Tax and Spend" Democrats.  The idea is simple.  Billionaires would now pay a tax on what they might earn.  In perhaps the simplest forms, the tax would be on what you might earn if you decided to sell or liquidate a business, property, stock, etc.   They currently talk about applying this plan to billionaires, but at least one Senator has already stated it could be floated to millionaires as well.  It doesn't take a genius to figure out that if Democrats take it to billionaires and eventually millionaires, someone will yell discrimination.  When Democrats realize they are discriminating by targeting billionaires (class discrimination - go on and look that up), they are going to discover the only answer they can...the Unrealized Capital Gains Tax must be applied to everyone.  Surprise!   

Now, you may be wondering what that means to you, and the answer can get complicated, so let's take a theoretical look: 

Unrealized Capital Gains tax would be implemented based on what you might earn, so if you bought stock worth $100 today, but next week, that same stock skyrocketed to $1000, you would stand to make $900 off your investment.  Sounds good, right?  Well, let's say you decide to keep the stock and not sell.  Now you don't make the $900 off the stock.  In the meantime, in comes the government, and they say, "Ah, you could have made $900 off that stock, but you did not, so it's 'Unrealized,' and now you owe taxes."  

Now there are various capital gains tax rates, and most depend on the amount made, how long the asset was held, etc., but since they range from 10% to about 37%, we'll just go with 25% for our little demonstration here.  

The government is now taxing your $900- remember you don't have it; you did not realize it (it's unrealized).   You will have 25% of that $900, and that will now be your tax owed of $225.  In the meantime, that stock drops back to $100 - yes, stocks can drop and don't even get started on cryptocurrency and how much it can climb and drop.  You now have a stock worth $100, for which you owe $225 in taxes for having it in your name or business name.  What are you going to do?  Simple, you're going to pay $225 regardless of the stock's current status.  You now have to sell your stock for $100, add $125 to that money and send a check to the IRS for $225.  You have to do this all because the stock had 'Unrealized Gains' on your $100 investment, even if it only went up for a day or a few hours.  Take that concept and apply it to everything - your 401K, your stock, cryptocurrency, land investments, rental properties, farms, small business, large business, inherited business or farms and land...get the picture yet?

So, in the end, the billionaire takes their money, leaves the country for a tax-friendly country, and lives the rest of their lives on a beach somewhere sipping soft drinks.  No longer do they invest in a business, start more business or build on current business because the last thing that billionaire is going to do is give up large sums of money on something they never realized.  The same will happen to the millionaire.  Finally, those in the middle class perhaps investing in small portfolios, will find their Domino's pizza stock throws them into a forced liquidation or bankrupt case with the IRS.  Many Americans will go bankrupt as many businesses simply fold.  This will then have a cascading outcome on the United States.  Business will close, goods and services will be hard to obtain, American unemployment will be unbelievable, and perhaps at higher rates than even the Great Depression and people will starve.  The small and large farms alike collapse and fold while trying desperately to sell grandpa's farm just to pay taxes.  

One final thought - you don't think this can happen?  You think they will only "stick it to" the rich...When the 16th Amendment was put in place, only 1% of the U.S. population paid income taxes.  Everyone believed the focus was,  surprise, the rich. So the rich began paying taxes.  The design was to focus on a certain income level in each state to support America.  Today, very few Americans pay 0 income tax.  Somehow that "rich only" view just worked its way right on down to...well, everyone.  Do you really think Unrealized Capital Gains Tax will only affect billionaires?  You may want to really think long and hard about that.