So what happens with AMZN if down for a year and Bezos liquidates his stocks? Would ProPublica run a story about Bezos' negative tax rate for the year?
In the privacy angle, you comment on the third quote with: "This is an … insane statement? — both rationally and morally. Truth can't ever be a sole criteria for publishing. It's necessary, but not sufficient. To suggest otherwise ought to flunk someone out of first year journalism school."
But they're not saying that they would publish any information that comes into their hands with no criteria besides reliability. They are just saying that they won't take into account the *provider's* motivation.
Stocks represent ownership and founders shouldn’t have that control taken away from them forcibly without making their own choices. Most founders would lose control of their company after several years as their stake dilutes.
Since you called this "bullshit", I'm going to be similarly harsh: your criticisms are bullshit. Point-by-point comments below; your text is prefixed by “>>” and my replies below.
>> “Delaying a tax is not avoiding a tax. Tax avoidance is a term of art..."
This is at best a nitpick and at worst a disingenuous attempt to imply ProPublica are ignorant (something you do throughout this piece). "Tax avoidance" is commonly understood—as in this Investopedia definition (https://www.investopedia.com/terms/t/tax_avoidance.asp)—to include deferring realizing gains in the hopes of finding a more favorable tax treatment in the future. A Roth IRA is such an example (as mentioned in the above link).
>> “Instead of stepping back to wonder what the positive motivations might be for not taxing capital gains until they’re realized..."
As ProPublica notes, some countries *do* tax wealth—which of course includes unrealized gains.
>>”I don’t know how to explain how batshit this is without sounding hyperbolic."
Knowing at least as much as you do about the field, none of this sounds “batshit.” As ProPublica notes, the senior Senator from Oregon has proposed taxing unrealized gains; a meaningful minority of large economies do this as well (by way of wealth taxes).
I do find the article’s vague tone of favor toward taxing unrealized gains instead of net wealth a bit strange, since the latter is workable and in use multiple places, whereas the former, to my knowledge, is not, but I don’t think that’s really dispositive.
>> “If letting a pool of money grow would mean far more to tax later, letting it grow is good. The government can effectively borrow the money it would have taken from the pool..."
I think the point you are trying to make here is, “let's not tax people now, because if their assets grow we'll have more to tax later?" If so, this is a facile point which is trivially true for income tax just as much as it is for gains or wealth tax.
>> “The trouble is that there’s basically no good way to do this that doesn’t introduce similar or worse problems."
Again, this is equivalent to arguing that any tax on assets results in lower asset pricing, which is trivially true but not meaningful.
>> “So instead of this obviously bad system, most countries use the very sane solution of staggering sales by only imposing a tax when an asset is sold."
Two things wrong with your point here: a) many countries require estimated tax payments (or favor them with interest), which would stagger such sales, b) buyers who believe that such sales artificially depress stock would be able to buy those depressed assets, counterbalancing this pressure.
A good analogy for this would be quarterly employee sales of stock grants, which have no meaningful effect on large company stock prices.
>> “Though stock markets are mostly global savings accounts loosely tied to the value of the individual companies underneath, those companies do things like grant employee stock options and sometimes sell stock to the public. When they do this at higher valuations, it generates more end taxation."
I have no idea what this word salad is trying to say. I think it might be some sort of Laffer Curve “don’t tax now and you’ll have more tax revenue later” argument, which is just laughable (Laffable?).
>> “Even if you only force the wealthy to liquidate, they're going to start with their common shares. And that will depress prices for all common shareholders (i.e., everyone). This is bad."
Of course this isn't true; buyers who do not care about preferred shares will simply buy the slightly depressed common stock instead. Keeping preferred and common stock equivalently priced is already something market arbitrageurs efficiently do today.
>> “Forcing serious stock liquidation every year will hurt smaller companies more, which is harmful for long-term innovation / competition."
Of course this isn't true either; smaller companies will have proportionately lower taxes levied on their shareholders because, like, that's how "percentages" and "rates" work, you ninnie.
>> “Sometimes stock prices go down, and that's generally not a write-off. So taxing the upside at an arbitrary point is unfair and kind of just silly."
"Fair" is pretty subjective. We tax real property (and have since the 17th century in some countries), but don't give money back to citizens when their property declines in value.
Maybe you should write an op-ed about how that commie Adam Smith supported property taxes?
>> “Successful companies induce enormous tax receipts for governments at all levels (corporate taxes, income taxes, property taxes, payroll taxes, headcount taxes, etc). If Bezos is paying less percentage-wise today because he's holding his Amazon stock, where said holding makes Amazon more valuable, that's a good net deal."
This facile argument is equally applicable to any corporate (or individual) taxes. If your point is just "all taxes are bad", sure, OK. But you seem to think you are making a point uniquely about unrealized capital gains taxes, which is just not true.
>> “This is not a revelation."
Seems the amount of interest this story has gotten would disagree with you.
>> “This is an … insane statement? — both rationally and morally. Truth can't ever be a sole criteria for publishing. "
Yes, that statement that you made up after misinterpreting the quote is indeed insane, but this is not what the quoted text says. The quoted text says that motives are irrelevant; it does not say that "truth is the sole criterion."
>> “So they think what they’ve done is legal (and just morally swell) because they didn't directly induce the theft of information."
Erm, you know about "Times v Sullivan", right? Since you're, like, into the whole journalism thing?
>> The public has no right to private info where no crime (or serious moral evil) has been committed."
Again, the mainstream view in the US—as well as the result of jurisprudence like Times v Sullivan—is that presence of a crime is not necessary to justify such a journalistic choice. You might disagree, but instead of making the case for why your heterodox view of journalistic ethics is correct, you just sort of beg the question by throwing it out there in the end.
The sentiment that the rich should pay more taxes is an emotional response to the fact that the country doesn't work. I've heard the Military Budget allows for 2 Billion dollars a day to be spent. Even if the rich pay our taxes, what is going to change? Fundamentally, there is no health care in the USA, the richest first world country in the world. We have a war machine that has been used to attack anyone who doesn't want the dollar as their reserve currency. Why don't the Uber rich change the system? Instead of paying taxes to a greedy, dysfunctional government, why don't they set up a better private health care system? Spend their money fixing infrastructure? Hell, Bezos could literally "save the AMAZON rain forest" with his money. The apathy of people moving from NY to FLA and CA to TX is because we've come to this point. The USA is business, not a country. It doesn't care about its people, proportionate to the amount of money it has. I would gladly pay more taxes myself If i saw the quality of life actually getting better.
"why virtually all developed countries don’t tax unrealized capital gains". Quite a few countries do tax, under conditions: Sweden, Japan (and Germany if I understand it correctly).
i agree mostly, the only thing the ProPublica article mentions that is worth debating is the practice of using the assets as collatoral for a credit lines and then in addition using the interest to offset any remaining income gains.
If the asset is used as collatoral for a credit line it should become a gain realizing tax event. The argument would be that the current worth of the asset is used. So the gain is realized, meaning it becomes an externally referenced property of the asset at that point in time, therefor it is realized (like a collpased state in quantum entanglement).
Of course this only applies to the part of the asset that was used as collatoral (so not all of the stock but only that portion of the stock that corresponds to the amount of the collatoral at the time of the credit contract where it was used.) This also avoids the liquidity problem, since it was used as collatoral for a very liquid asset, a credit line. (technically it is similar to selling and buying back the stock).
Some exceptions can be made to lessen the impact if homeowners use their appreciated home as collatoral (2nd mortgage or sth. like this).
The rest of the ProPublica article is as you pointed out quite ignorant of the reality.
"Depress the prices for the common stockholder (ie everyone)" Uhh... You DO realize that not everybody owns stock, right? Homeless people don't own stock, generally.
If I have zero dollars in wealth, it means the state is taxing my wealth at 100% as the amount I pay in tax (direct or indirect) would contribute to my wealth. Why do we tax the poor people wealth at 100% but are reluctant to do the same with rich people? The distinction between income and wealth is a red herring and can be massaged arbitrarily.
Politely, your agrument about "why we don't tax unrealized gains" is deeply faulty. While there are a number of reasons, and you've listed those as "angles" (they're not angles, they're reasons), the number one reason is it is very hard to set a price on an unrealized gain --- because the gain hasn't been realized. Only in the case of a highly liquid publicly traded fully fungible asset can we make such a claim without stepping through great pains - and then we'd get it wrong. Even in the one clearest case, a major holding in a public company is "worth" a certain amount, the amount of variance between the posted closing price of a stock and the value of that position is speculation. If Bezos sold all of his shares, he wouldn't get the price posted on the wall - the value would fall. Any value set by taking the price on a certain day, or an average, is speculation.
An unrealized gain has no known value. It is actually the definition of "unrealized" -- the asset was not traded on the open market for currency, where we would know its value.
But that's the case of a few highly liquid highly fungible assets (stocks). You, and propublica, have focused on this case because it's an asset we think we can value.
If we apply the general principle of taxing unrealized gains, we'd have to tax all unrealized gains - or the oligarchs would simply put their wealth into these assets that are untaxed.
If we have a general principle of taxing unrealized gains, we'll have to speculate the value of every thing every person has. Every person, every asset, let the insanity (your word) sink in. Take me. The most expensive thing I own is a musical instrument. I was flush one year, I'm a semi-pro player, and I splurged and bought it, knowing it would be a treasure and joy my entire life. I have never, in my entire life, owned any single thing as expensive as this, even to this day. I've also never attempted to find out its value - it's not a strad - but instrument prices have gone up. Perhaps the maker got trendy and it's now worth millions of dollars - I have no idea. Maybe it's nearly worthless. Or maybe this maker only made 6, and none have ever changed hands.
Maybe you have an ugly rug given to you by an aunt. Would you go to jail for not having it valued? Or only if a friend who is a rug dealer spotted it in your house, realized its worth, and called the tip line for your tax evasion (netting a commission)?
Imagine if every asset every person owns had to be valued every year, and each and every one of us had to submit a full accounting of our net worth based on this speculation and pay more.
Ok, you say, that's silly. We'll exempt people without large assets. How do I prove I don't have a large asset, that my instrument isn't worth a billion dollars? I guess I have to find its value, to make sure I'm not breaking the law. And what if I'm wrong, and when I decide to sell it next year I find out it was worth a billion last year, do I got to jail? I guess I would. Ok, then, we'll write into the law certain safe harbors - which the super rich would exploit.
That's my #1 reason why we don't tax unrealized gains. An unrealized gain has not been valued, and speculating on the value leads to opinions, and we don't want our tax system to be based on opinions. Nor do we want to value every asset of every person - it's too much work.
Give me a break. You call publishing some basic tax numbers of the richest people an invasion of privacy, but have no (visible) concern about Amazon workers bathroom time being monitored etc. Tax information should be public anyway, like in Norway.
The only reason we know the rich don't pay their fair share of taxes (often because they endlessly defer them) is due to leaks like this. Corroboration of well known facts aren't a negative thing.
The one flaw with the ProPublica article was that it didn't mention a wealth tax. A 1% wealth tax on assets over $200 000 would be a very workable solution to prevent legal tax avoidance by endless tax deferment.
Thanks for writing this, it needed to be said.
So what happens with AMZN if down for a year and Bezos liquidates his stocks? Would ProPublica run a story about Bezos' negative tax rate for the year?
In the privacy angle, you comment on the third quote with: "This is an … insane statement? — both rationally and morally. Truth can't ever be a sole criteria for publishing. It's necessary, but not sufficient. To suggest otherwise ought to flunk someone out of first year journalism school."
But they're not saying that they would publish any information that comes into their hands with no criteria besides reliability. They are just saying that they won't take into account the *provider's* motivation.
One more reason against taxing unrealized gains:
Stocks represent ownership and founders shouldn’t have that control taken away from them forcibly without making their own choices. Most founders would lose control of their company after several years as their stake dilutes.
Since you called this "bullshit", I'm going to be similarly harsh: your criticisms are bullshit. Point-by-point comments below; your text is prefixed by “>>” and my replies below.
>> “Delaying a tax is not avoiding a tax. Tax avoidance is a term of art..."
This is at best a nitpick and at worst a disingenuous attempt to imply ProPublica are ignorant (something you do throughout this piece). "Tax avoidance" is commonly understood—as in this Investopedia definition (https://www.investopedia.com/terms/t/tax_avoidance.asp)—to include deferring realizing gains in the hopes of finding a more favorable tax treatment in the future. A Roth IRA is such an example (as mentioned in the above link).
>> “Instead of stepping back to wonder what the positive motivations might be for not taxing capital gains until they’re realized..."
As ProPublica notes, some countries *do* tax wealth—which of course includes unrealized gains.
>>”I don’t know how to explain how batshit this is without sounding hyperbolic."
Knowing at least as much as you do about the field, none of this sounds “batshit.” As ProPublica notes, the senior Senator from Oregon has proposed taxing unrealized gains; a meaningful minority of large economies do this as well (by way of wealth taxes).
I do find the article’s vague tone of favor toward taxing unrealized gains instead of net wealth a bit strange, since the latter is workable and in use multiple places, whereas the former, to my knowledge, is not, but I don’t think that’s really dispositive.
>> “If letting a pool of money grow would mean far more to tax later, letting it grow is good. The government can effectively borrow the money it would have taken from the pool..."
I think the point you are trying to make here is, “let's not tax people now, because if their assets grow we'll have more to tax later?" If so, this is a facile point which is trivially true for income tax just as much as it is for gains or wealth tax.
>> “The trouble is that there’s basically no good way to do this that doesn’t introduce similar or worse problems."
Again, this is equivalent to arguing that any tax on assets results in lower asset pricing, which is trivially true but not meaningful.
>> “So instead of this obviously bad system, most countries use the very sane solution of staggering sales by only imposing a tax when an asset is sold."
Two things wrong with your point here: a) many countries require estimated tax payments (or favor them with interest), which would stagger such sales, b) buyers who believe that such sales artificially depress stock would be able to buy those depressed assets, counterbalancing this pressure.
A good analogy for this would be quarterly employee sales of stock grants, which have no meaningful effect on large company stock prices.
>> “Though stock markets are mostly global savings accounts loosely tied to the value of the individual companies underneath, those companies do things like grant employee stock options and sometimes sell stock to the public. When they do this at higher valuations, it generates more end taxation."
I have no idea what this word salad is trying to say. I think it might be some sort of Laffer Curve “don’t tax now and you’ll have more tax revenue later” argument, which is just laughable (Laffable?).
>> “Even if you only force the wealthy to liquidate, they're going to start with their common shares. And that will depress prices for all common shareholders (i.e., everyone). This is bad."
Of course this isn't true; buyers who do not care about preferred shares will simply buy the slightly depressed common stock instead. Keeping preferred and common stock equivalently priced is already something market arbitrageurs efficiently do today.
>> “Forcing serious stock liquidation every year will hurt smaller companies more, which is harmful for long-term innovation / competition."
Of course this isn't true either; smaller companies will have proportionately lower taxes levied on their shareholders because, like, that's how "percentages" and "rates" work, you ninnie.
>> “Sometimes stock prices go down, and that's generally not a write-off. So taxing the upside at an arbitrary point is unfair and kind of just silly."
"Fair" is pretty subjective. We tax real property (and have since the 17th century in some countries), but don't give money back to citizens when their property declines in value.
Maybe you should write an op-ed about how that commie Adam Smith supported property taxes?
>> “Successful companies induce enormous tax receipts for governments at all levels (corporate taxes, income taxes, property taxes, payroll taxes, headcount taxes, etc). If Bezos is paying less percentage-wise today because he's holding his Amazon stock, where said holding makes Amazon more valuable, that's a good net deal."
This facile argument is equally applicable to any corporate (or individual) taxes. If your point is just "all taxes are bad", sure, OK. But you seem to think you are making a point uniquely about unrealized capital gains taxes, which is just not true.
>> “This is not a revelation."
Seems the amount of interest this story has gotten would disagree with you.
>> “This is an … insane statement? — both rationally and morally. Truth can't ever be a sole criteria for publishing. "
Yes, that statement that you made up after misinterpreting the quote is indeed insane, but this is not what the quoted text says. The quoted text says that motives are irrelevant; it does not say that "truth is the sole criterion."
>> “So they think what they’ve done is legal (and just morally swell) because they didn't directly induce the theft of information."
Erm, you know about "Times v Sullivan", right? Since you're, like, into the whole journalism thing?
>> The public has no right to private info where no crime (or serious moral evil) has been committed."
Again, the mainstream view in the US—as well as the result of jurisprudence like Times v Sullivan—is that presence of a crime is not necessary to justify such a journalistic choice. You might disagree, but instead of making the case for why your heterodox view of journalistic ethics is correct, you just sort of beg the question by throwing it out there in the end.
The sentiment that the rich should pay more taxes is an emotional response to the fact that the country doesn't work. I've heard the Military Budget allows for 2 Billion dollars a day to be spent. Even if the rich pay our taxes, what is going to change? Fundamentally, there is no health care in the USA, the richest first world country in the world. We have a war machine that has been used to attack anyone who doesn't want the dollar as their reserve currency. Why don't the Uber rich change the system? Instead of paying taxes to a greedy, dysfunctional government, why don't they set up a better private health care system? Spend their money fixing infrastructure? Hell, Bezos could literally "save the AMAZON rain forest" with his money. The apathy of people moving from NY to FLA and CA to TX is because we've come to this point. The USA is business, not a country. It doesn't care about its people, proportionate to the amount of money it has. I would gladly pay more taxes myself If i saw the quality of life actually getting better.
Thank you for writing this piece. I cannot believe how wrong ProPublica is on this, and how few people are challenging them.
"why virtually all developed countries don’t tax unrealized capital gains". Quite a few countries do tax, under conditions: Sweden, Japan (and Germany if I understand it correctly).
i agree mostly, the only thing the ProPublica article mentions that is worth debating is the practice of using the assets as collatoral for a credit lines and then in addition using the interest to offset any remaining income gains.
If the asset is used as collatoral for a credit line it should become a gain realizing tax event. The argument would be that the current worth of the asset is used. So the gain is realized, meaning it becomes an externally referenced property of the asset at that point in time, therefor it is realized (like a collpased state in quantum entanglement).
Of course this only applies to the part of the asset that was used as collatoral (so not all of the stock but only that portion of the stock that corresponds to the amount of the collatoral at the time of the credit contract where it was used.) This also avoids the liquidity problem, since it was used as collatoral for a very liquid asset, a credit line. (technically it is similar to selling and buying back the stock).
Some exceptions can be made to lessen the impact if homeowners use their appreciated home as collatoral (2nd mortgage or sth. like this).
The rest of the ProPublica article is as you pointed out quite ignorant of the reality.
Some commenters are seriously misinformed about how taxing wealth and unrealized gains work here.
-----
Wealth Tax:
Asset appreciates - tax burden increases
Asset depreciates - tax burden decreases
-----
Unrealized Gain:
Asset appreciates - tax burden increases
Asset depreciates - no change in tax burden
-----
An unrealized gains tax is analogous to an option and penalizes owners of volatile assets much more than a wealth tax does.
Rules of the game for the super-wealthy:
-unrealized gains equal asset, equal collateral
-use the asset, borrow and spend, borrow and spend ...
-IRS deduction of interest on this borrowing
-make and spend all you want, with zero tax
"Depress the prices for the common stockholder (ie everyone)" Uhh... You DO realize that not everybody owns stock, right? Homeless people don't own stock, generally.
If I have zero dollars in wealth, it means the state is taxing my wealth at 100% as the amount I pay in tax (direct or indirect) would contribute to my wealth. Why do we tax the poor people wealth at 100% but are reluctant to do the same with rich people? The distinction between income and wealth is a red herring and can be massaged arbitrarily.
Politely, your agrument about "why we don't tax unrealized gains" is deeply faulty. While there are a number of reasons, and you've listed those as "angles" (they're not angles, they're reasons), the number one reason is it is very hard to set a price on an unrealized gain --- because the gain hasn't been realized. Only in the case of a highly liquid publicly traded fully fungible asset can we make such a claim without stepping through great pains - and then we'd get it wrong. Even in the one clearest case, a major holding in a public company is "worth" a certain amount, the amount of variance between the posted closing price of a stock and the value of that position is speculation. If Bezos sold all of his shares, he wouldn't get the price posted on the wall - the value would fall. Any value set by taking the price on a certain day, or an average, is speculation.
An unrealized gain has no known value. It is actually the definition of "unrealized" -- the asset was not traded on the open market for currency, where we would know its value.
But that's the case of a few highly liquid highly fungible assets (stocks). You, and propublica, have focused on this case because it's an asset we think we can value.
If we apply the general principle of taxing unrealized gains, we'd have to tax all unrealized gains - or the oligarchs would simply put their wealth into these assets that are untaxed.
If we have a general principle of taxing unrealized gains, we'll have to speculate the value of every thing every person has. Every person, every asset, let the insanity (your word) sink in. Take me. The most expensive thing I own is a musical instrument. I was flush one year, I'm a semi-pro player, and I splurged and bought it, knowing it would be a treasure and joy my entire life. I have never, in my entire life, owned any single thing as expensive as this, even to this day. I've also never attempted to find out its value - it's not a strad - but instrument prices have gone up. Perhaps the maker got trendy and it's now worth millions of dollars - I have no idea. Maybe it's nearly worthless. Or maybe this maker only made 6, and none have ever changed hands.
Maybe you have an ugly rug given to you by an aunt. Would you go to jail for not having it valued? Or only if a friend who is a rug dealer spotted it in your house, realized its worth, and called the tip line for your tax evasion (netting a commission)?
Imagine if every asset every person owns had to be valued every year, and each and every one of us had to submit a full accounting of our net worth based on this speculation and pay more.
Ok, you say, that's silly. We'll exempt people without large assets. How do I prove I don't have a large asset, that my instrument isn't worth a billion dollars? I guess I have to find its value, to make sure I'm not breaking the law. And what if I'm wrong, and when I decide to sell it next year I find out it was worth a billion last year, do I got to jail? I guess I would. Ok, then, we'll write into the law certain safe harbors - which the super rich would exploit.
That's my #1 reason why we don't tax unrealized gains. An unrealized gain has not been valued, and speculating on the value leads to opinions, and we don't want our tax system to be based on opinions. Nor do we want to value every asset of every person - it's too much work.
Give me a break. You call publishing some basic tax numbers of the richest people an invasion of privacy, but have no (visible) concern about Amazon workers bathroom time being monitored etc. Tax information should be public anyway, like in Norway.
The only reason we know the rich don't pay their fair share of taxes (often because they endlessly defer them) is due to leaks like this. Corroboration of well known facts aren't a negative thing.
The one flaw with the ProPublica article was that it didn't mention a wealth tax. A 1% wealth tax on assets over $200 000 would be a very workable solution to prevent legal tax avoidance by endless tax deferment.