[teachingassist]

> Forcing people to mark-to-market?

The Netherlands manages to do exactly that.

> There's no way to (fairly) tax capital gains

The fair part is that it's taxed - otherwise, it's unfair on people who are unable to exploit this tax avoidance.

We are talking about people with meaningful wealth. They can afford to be taxed without waiting for it to be perfectly 'fair'. Letting them pay $0 until its fair doesn't make sense.

It makes more sense to pay the expected amount, at least until you have the receipts.

Indeed, that's how my own labour income is already taxed. I first pay income tax for 2021 based on my income in 2020 - whenever it turns out to be too much, I can declare it later and will get a refund. But, I can't pay $0.

[gambiting]

>>We are talking about people with meaningful wealth. They can afford to be taxed without waiting for it to be perfectly 'fair'. Letting them pay $0 until its fair doesn't make sense

But....shares are useless until sold. Even if you have 1BN worth of shares it means nothing until you actually sell them/trade them? In fact, they could be worth nothing next week, how can you be taxing someone on a hypothetical sale value?

>>Indeed, that's how my own labour income is already taxed. I first pay income tax for 2021 based on my income in 2020 - whenever it turns out to be too much, I can declare it later and will get a refund. But, I can't pay $0.

That's literally insane. So you're basically giving your government a loan a year in advance? Why? Why not pay your income tax when you know - you get your income, like the rest of Europe does?

[bzbarsky]

> Why not pay your income tax when you know - you get your income

Yeah, I have no idea why gambiting is not doing that.

The rules in the US is that your estimated tax payments have to cover the smaller of 90% of your current-year ongoing (quarterly) tax liability or 90% (sometimes 110% for high incomes, an there are other special rules for farmers/fishermen) of the previous-year tax liability.

So yes, you can make them based on last year's income as as safe harbor if you have no clue what's going on with your income this year for some reason. Or you can just make them based on this year's income as you go.

[saxonww]

Not to mention that at least in the US, decades of effort has been put into moving peoples' retirements into personal, private investment accounts. Including Roth IRA/401k where the entire point was to pay tax on the input to avoid it later on the output.

The idea that someone should pay taxes on potential money is not a good one, IMO. I think there would be a lot of legitimate pushback, and if a plan was adopted anyway there would be serious political consequences.

[jameshart]

> That's literally insane. So you're basically giving your government a loan a year in advance? Why? Why not pay your income tax when you know - you get your income, like the rest of Europe does?

You might be misunderstanding - this is literally how tax withholding works. You pay estimated taxes as you go through the year, and then file a return at the end of the year and settle up with the government to what your actual tax liability should be.

That's how most income taxes work in most countries.

[doubleunplussed]

Dollars only have hypothetical value until spent as well, but we still tax them.

I'm not super rich but if the government wanted to tax my shares, I'd pay the tax out of my income instead of buying more shares. I could probably pay a decent chunk of it out of dividends too, if I wasn't reinventing them.

Property tax here in Australia is based on hypothetical value, the sky doesn't fall.

Even if people have to sell some shares, I just don't care, it's not a big deal. Sell em.

[bzbarsky]

Not all shares can be sold. Especially at all times (blackout periods, etc.)

The problem with the oft-cited options example is that tax is levied on gain of an asset that in fact cannot be legally sold at the time the tax is levied and is often enough worthless (or worth a lot less than at tax time) by the time it _can_ be legally sold.

Asset-based taxation on liquid assets with deep markets and clear prices is indeed probably fine in various ways. But if you tax other sorts of assets there are various problems, and if you only tax the easily-taxable ones people will turn to the other ones to avoid taxation...

[teamonkey]

When I worked in North America I found this incomprehensible at first. I think the reason is because you need to manually file a tax return each year rather than having it calculated and deducted automatically.

To avoid a massive tax payment at the end of the year, you could elect how much tax would be deducted from your salary each month. The usual way to calculate it was based on last year's income. It wouldn't factor in all tax deductions so, at the end of the tax year, and after you'd filed the tedious and complicated tax return, you'd find that you'd overpaid. Better that than underpaying.

In the UK, usually your employer collects tax monthly. They calculate the amount to collect based on your current monthly salary projected forward and how much tax you've already paid. If there's a mismatch at the end of the year, the tax office uses a 'tax code' to adjust the amount to collect over the next 12 months.

[cycomanic]

> That's literally insane. So you're basically giving your government a loan a year in advance? Why? Why not pay your income tax when you know - you get your income, like the rest of Europe does?

I think you're misunderstanding. The tax rate they are paying is estimated based on the previous year income (we'll actually it's a combination of present income and previous years) because the tax office can't know your exact income (and deductions) until the end of the year. So when you do your tax return at the end of the year you either get a refund or need to pay some more. I'm pretty sure that's how it works in most of Europe (at least in most of the countries I'm aware of). So there is no loan to the government, they still pay the tax as a rate on when the income comes in.

[gambiting]

OP said:

"Indeed, that's how my own labour income is already taxed. I first pay income tax for 2021 based on my income in 2020"

It sounds like they pre-pay tax for 2021 based on what they paid in 2020. If that's not how it works then I retract my statement.

[bzbarsky]

That is a thing you can do in the US. It is not a thing you have to do, by any means.

[insta_anon]

> But....shares are useless until sold. Even if you have 1BN worth of shares it means nothing until you actually sell them/trade them? In fact, they could be worth nothing next week, how can you be taxing someone on a hypothetical sale value?

Germany does something similar: https://de.wikipedia.org/wiki/Wegzugsbesteuerung (unfortunately only in German).

Basically your tax advisor agrees with the government on a "fair" valuation and you are taxed on a 'fictions sale' when you cease to be a German tax resident and hold more than 1% shares in a company.

[teachingassist]

> But....shares are useless until sold.

This is clearly untrue. At least they have use in the ongoing option to sell. I can use them as collateral to borrow at least as much as, and probably a multiple of, their value.

If you genuinely think they are useless, please give me some. I will use them.

> how can you be taxing someone on a hypothetical sale value?

Since shares are fungible, the government could just apply the tax as a number of shares. Then nobody has to worry about defining a hypothetical value.

[rileymat2]

> But....shares are useless until sold.

I think there are high profile cases of founders getting low interest loans with the shares as collateral. This allows spending of the money without losing control or paying taxes now.

So, no they are useful before they are sold.

[robotresearcher]

> But....shares are useless until sold.

You can borrow cash against them, and live entirely on that cash for decades.

[gambiting]

But......at the moment when you want to repay that debt, you need to sell the shares = pay tax on them. You can of course pay off the debt in some other way, but presumably whatever money you use for that purpose would have been taxed too, perhaps even more so than shares are.

And I mean, if I borrow money to help me out until I get my paycheck, I don't pay the income tax on the borrowed money - I pay it when I get the paycheck.

[robotresearcher]

Don't repay that debt. Just have it in perpetuity, paying a little interest.

[chasd00]

> We are talking about people with meaningful wealth. They can afford to be taxed without waiting for it to be perfectly 'fair’

I don’t see that holding up in court.

[doubleunplussed]

This is putting the cart before the horse.

What is being proposed is to change the law. A court will absolutely uphold that law, once it is written. What it would do under current laws is irrelevant.

[cool_dude85]

Plenty of unfair taxes hold up in court. Property taxes are an "unfair tax" in the same sense.

Of course, the assessor can't exactly predict the value of a commodity like a home with complete accuracy. Some people get undercharged and some get overcharged, this might even be a systemic thing. But as long as it's "good enough", then the tax works more or less how it should.

[Mauricebranagh]

So if I wait to sell shares when it suits me I a some how a monster now ? You do realise that many employees on average wages do this.

Even the SWP is cool with employee shares now

[teachingassist]

> So if I wait to sell shares when it suits me I a some how a monster now ?

Being asked to pay tax on your wealth is not a judgement about your moral character.

We ask people to pay tax to benefit society, not because we hate them.

Given that shares are fungible, you could just give a percentage of your shares to the government as the tax/the government could or should accept this as your tax payment.

> You do realise that many employees on average wages do this.

I'd like to say almost none but I understand the median person the US holds a small amount of wealth. If there was a progressive wealth tax, you could take people with average wealth out of the requirement to pay.

[Mauricebranagh]

So I should be forced to sell shares early? I have no problem with paying tax due I am not in US BTW

And some countries think and I agree that people having a stake in your employer and in the economy through share ownership is a good thing.