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We already have the taxation of unrealized capital gains that some Democrats could not get

Posted by John Reed on

Dem Senators Wyden, Bernie, and Pocahontas proposed but did not get, taxation of unrealized capital gains.
Since the beginning of tax law in 1913, gains were only taxed when the asset in question was sold. One reason is you may not have any money with which to pay the tax until you sell it.

Democrats want your money NOW

Dems want more tax money from the rich. The rich have excess savings compared to the average person. They invest those savings in capital assets like stocks bonds, real estate, commodities like gold. Under tax law since 1913, Dems have to wait until the rich sell the asset. The Dems do not WANT to wait. It is “THEIR” money and they want it NOW even though it has not yet been realized.

Already in TIPS

This was in the BBB bill which failed. But guess what? Taxation of unrealized capital gains already exists. It applies to TIPS which are Treasury Inflation Protected Securities, U.S. government bonds.

Your adjustment gain is a day late and a dollar short

Twice a year, they adjust the principal and interest to reflect the CPI inflation rate for the quarter more than three months earlier. You have to pay the tax on that gain and interest during the quarter in which the adjustment is made. But you may not have the money in cash until the bond matures. The bonds mature in 5 or 10 or 30 years.

And it’s phantom gain, not real gain

Furthermore, the gain on which you must pay tax is not a real gain. It if a phantom gain. An increase in inflation simply means the purchasing power of the bond went down. When the government adjusts the principal and interest amount upward, you have not gain purchasing power. Indeed, you have lost purchasing power.
It is as if the federal government robbed you of $100 then said you thereby had a $100 gain and made you pay taxes on the $100.

Treasury Inflation Protected Securities do not protect you from inflation

So since the bonds adjust too slowly to keep you even with inflation, they do not protect you from inflation. And the fact that they are taxed on the adjustment makes it even worse. After inflation and taxes, you have LOST money in real terms, the opposite of the promise made in the title of the bonds.

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