by Zain Jaffer
One of the campaign promises mentioned by one of the parties publicly prior to the elections in November 2024 is to tax unrealized gains to help pay for the growing US debt [https://finance.yahoo.com/news/why-kamala-harriss-approach-to-capital-gains-is-generating-so-much-controversy-112935244.html]. Although it has been qualified to apply only for those whose wealth exceeds $100M, the proposal itself will only lead to disastrous results for the US economy.
Crypto and stock paper profits for example may be true today, but may no longer be true a few hours later. It only becomes real once you have sold the asset for dollars, be it crypto, real estate, stocks, bonds, gold, or any asset.
Experts and well known personalities have attacked the proposal as dangerous to the US economy. Elon Musk has tweeted that the proposal will lead to “bread lines and ugly shoes,” a reference to the Great Depression in the 30s [https://x.com/elonmusk/status/1826016080952991903]. The American Institute for Economic Research (AIER), a think tank, has said that the so-called economic benefits of an unrealized gains tax is an “economic fallacy” [https://www.aier.org/article/unrealized-gains-tax-is-an-economic-fallacy/].
There are many problems with taxing gains on paper that have not been realized.
Take the US stock market, which often influences all other global stock markets with its price movements. What would happen if large holders of US stocks were to sell to cover their unrealized gains? Of course stock and index prices would drop, sending every retirement portfolio down in value.
What would incentivize investors to put money in promising new ventures, or founders to start risky ventures, if a huge portion of the wealth they create just gets taxed before they even sell their shares. Those companies, which could have been large employers in the future, will never get off the ground.
This is to say nothing of risk avoidance by people who would rather do nothing and remain below the threshold. What becomes of that capital, and the promise it could have delivered. After all, America’s companies bring benefits not just to Americans but to people around the globe. These companies would not get there without the funding they get from US stock and debt markets, driven by people who want to get future profits.
The real cause of American financial balance sheet weakness is unbridled Government fiscal spending. As of early September 2024, we already had a Debt to GDP ratio of around 123% that is still growing each second because we are funding wars, social security, Medicare, military and defense, a huge government bureaucracy, even the needs of illegal immigrants [https://usdebtclock.org/].
Although not yet at the federal level, the recent move by California to grant illegal immigrants the right to a home mortgage loan to purchase housing is an example of the kind of spending we should discourage [https://www.nbclosangeles.com/news/local/new-bill-passed-california-state-allow-undocumented-immigrants-buy-a-home/3498383/ and https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202320240AB1840]. Eventually this and similar bills such as health care coverage for illegal immigrants [https://www.npr.org/sections/health-shots/2023/12/29/1221780712/more-states-extend-health-coverage-to-immigrants-even-as-issue-inflames-gop] further strains US taxpayers.
America is successful because it has embraced capitalism, and the promise that if you work hard, you might fulfill the American dream. Other countries around the world who embraced socialism’s failed practices have learned the hard way that those do not work. Ask President Javier Milei of Argentina, who has had to rescue his country from its previous disastrous affair with socialism and big government [https://www.heritage.org/americas/commentary/argentinas-milei-miracle-exposing-its-failing-socialist-neighbors].
Taxing unrealized gains will not work. The right approach is to cut excessive government spending to balance the budget. Let us not screw around with what has worked well for us in the past, unless we want to become a basket case like some failed states have around the world.
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