[bhupy]

Because it defeats the purpose of a progressive capital gains tax?

If the concern is that someone is paying less in tax off $250,000 in capital gains when they realize their wealth than someone who is paid a wage of $250,000, the policy prescription (with which I agree), is to tax $250,000 capital gains like income, I.e. at the top marginal tax rate.

What happens if I liquidate $50,000 at a time over the course of 5 years, and continue to pay a net effective tax of around ~20%, which is what the long term capital gains tax is, today?

[macd]

I guess that's a question of what the purpose actually is. If you only take out $50k, then you're living on $50k that year and you pay the same amount of tax as if you had worked a regular job for the same amount. If you want to live a more extravagant lifestyle, you take more out and are taxed more.

This could mean that they have $1 million of unrealized gains that year. You're not really able to tax unrealized gains most of the time because they could disappear or go negative. That would go untaxed until they sell, but it would eventually be taxed.

At the same time, they're not going to be able to enjoy their wealth only taking out a small amount every year, so I'm not entirely convinced that this behavior of living frugally to pay less tax is something we need to 'prevent'.

[bhupy]

> You're not really able to tax unrealized gains most of the time because they could disappear or go negative

Very fair point.

> I'm not entirely convinced that this behavior of living frugally to pay less tax is something we need to 'prevent'.

I think I buy this argument. Another commenter had the suggestioin of dividing the actual realized gain by the number of years the asset was held and assess taxes as if the person made that quotient in income for each of those years. I can't think of anything wrong with this approach.

[leetcrew]

I don't think it makes sense to tax the appreciation of an asset over twenty years as if it were a single year of outsized income. if you want to treat it similarly to income, you should divide the realized gain by the number of years the asset was held and assess taxes as if the person made that quotient in income for each of those years (under the rules/brackets for each year, possibly with some adjustments for inflation). this would make it harder for average joe to estimate his tax liability when he sells, but it prevents the tax optimization you mentioned and is (imo) pretty fair.