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The U.S. tax system only taxes realized income—meaning money from a paycheck, a dividend payment, or the actual sale of an asset. If a billionaire owns $100 billion in stock and that stock grows by $10 billion in a year, they do not owe a single dime of income tax on that $10 billion increase until they sell the shares.
And neither does anyone else. I don’t pay on the growth in my IRA or any investment. I don’t pay on the increased value of my homes. Besides, I’m retired and 83 years old and I am therefore presumed to be “poor.”
Remember Ronald Read, the gas station attendant and janitor who accumulated $8 million by his death and supposedly had dividend income of $20,000 a month which he reinvested. He paid taxes on those dividends but not on the appreciation in portfolio and why should he or you or anyone else? His estate escaped taxes too as he gave most to local charities to help his community. I have no issue with that either.
I see no difference between billionaires and every other American. I often wonder if we taxed unrealized gain, what would we do about unrealized loss.
The Sixteenth Amendment says Congress may “lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.” Congress had the power to tax under Article 1, there were limits on direct taxation which the 16th Amendment resolved.
We seem to mix up income and wealth. Accumulated wealth gains a great deal of attention. I suppose we could redefine “income,” but that would be messy. I see income as a permanent gain, but if we include unrealized gains it can also be a partial or total loss, not so much income.
Let’s hope our obsession with 1000 or so billionaires and their taxes does not result in unintended adverse consequences for middle and upper middle class taxpayers.
While the author and I may agree that only realized income should be taxed, there is a growing movement to tax wealth – what is simply owned, rather than earned. The state of Washington twisted its Constitution last year to pass what is a wealth tax, and California may soon have the issue on its ballot. The end goal is not just to get more tax money, but to get tax money sooner. Government doesn’t want to wait for a “taxable event” any more. It needs more money now. And so it follows Willie Sutton – it goes where the money is. But if one pays on wealth one year, should they get a credit the next year if wealth declines, or they sell an asset for less than it was taxed? The deviation from settled principles of taxation will upend the tax laws in many places, and make life even more complicated. The anomalies and contradictions will eventually impact us all.
By the way, 1,000 people with a billion dollars means wealth of only a trillion dollars. Even with the multi-billionaires thrown in, the tax on their wealth will barely begin to dent the deficit. The solution is to spend less than the government collects.
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Those states will come to regret it as several countries have. As you say, barely a dent. Take all their wealth and then what or worse create ongoing spending obligations for the state and wealth declines or leaves.
Consider according to OMB what the federal government alone spends:
Does our federal government have a revenue problem or a spending problem? Clearly both, but mostly revenue. Our obsession with the thousand or so billionaires is just a proxy for the reality that income inequality is massively accelerating. What happens when nearly all the wealth is created by robots and AI, owned by a hundred trillionaires who declare no income? The Founders were pretty smart, but they had no concept of a handful of Americans holding the wealth of Croesus while 99% subsist on the margins.
Many of the comments I’ve read in this post appear to suggest that Americans don’t pay enough in taxes to fund our government. They seem to feel that, to improve our fiscal condition, we need to raise tax rates generally or on billionaires specifically.
But even if billionaires were forced to pay a few billions more in taxes, that wouldn’t seem make much of a dent in our deficit.
Does our federal government have a revenue problem or a spending problem? I feel it’s the latter. If our government received more tax revenue, my hunch is that most of that money would be spent rather than used to reduce our debt level.
How many billions are wasted in ineffective programs or to outright fraud? How many able-bodied people fraudulently claim disability to avoid work and secure a place on the welfare rolls?
Personally, I wouldn’t support a tax increase until there was significant progress made in spending reform. Unfortunately, our elected representatives seem unwilling to make hard choices and prefer to kick the can down the road, especially in an election year.
We may not be the most heavily taxed country in the world, but we are certainly the most innovative. Is there a connection here? Leaving more money in the hands of private citizens to invest in new technologies, products, or services would seem to be a national strength.
One reader mentioned that the Netherlands taxes unrealized income along with a progressive tax rate approaching 50% at the top end. I’m not aware that the Netherlands is a hot bed of innovation.
I can think of $1.8 billion wasted.
As a fellow European I’ll push back hard on the claim that the Netherlands isn’t a hotbed of innovation — it’s consistently ranked in the global top ten, and half of that top ten is made up of high-taxing Western European nations.
As for the Netherlands specifically: there is a single Dutch company called ASML that manufactures the only machines in the world capable of producing the most advanced semiconductors. Every major chipmaker — TSMC, Intel, Samsung — depends entirely on them. No ASML machines, no cutting-edge AI chips. The US has been trying to build an alternative for years and remains firmly behind. That’s quite a counterargument to the idea that high taxes kill innovation.
Mark, I concede your point.
ASML was founded as a joint venture between two Dutch technology companies. It’s chip-making equipment is world-class and the people who built ASML have every reason to be proud of their accomplishments.
I have also read that ASML once considered moving to another European location because it was unhappy with the Dutch government’s approach to fostering growth. Could high taxes have been one reason? Could ASML have had difficulty attracting talent with offers of stock options if the Dutch government taxes unrealized capital gains as income?
In 2021, Shell relocated its global headquarters to the UK partly due to Dutch dividend taxation.
The Netherlands, like many western European countries, has a strong social safety net funded by higher taxes. And yes, innovation and high taxes can coexist. But when innovative companies seek to expand their global reach, do high taxes at home become an obstacle?
As far as I am aware, there is no European technology company that has the global reach of an Nvidia, Amazon, Apple, etc. I wonder why that is?
Philip, The US has some powerful structural advantages. A massive single market, one language, and a unified corporate tax structure let innovative businesses scale at remarkable speed. Europe has tried to replicate this with the EU single market, but fractured tax regulations between member states have limited its success. Add deep, liquid capital markets to the American side of the ledger, and you have an ecosystem that makes scaling a successful business dramatically easier than it is for European counterparts.
Employment law is another factor worth considering. Because it’s harder for European companies to shed employees, they naturally tend toward conservatism when betting on innovation and growth — the spectre of being unable to easily cut headcount if a venture fails is a genuine drag on risk appetite.
All of this gives corporate America an enormous competitive advantage. But I’ll be honest: as someone who benefits from the stability of the European social contract, I’m content with the trade-off.
Technology isn’t everyting and while it’s certainly having it’s moment will those companies have a legacy like Siemens, BMW, Mecedes, Novo Nordisk, SAP, Nestlé.Volkswagen, Shell etc. Maybe but their bubble could pop tomorrow.
And in addition to innovation, my understanding is government services seem to run pretty well there too.
There would probably be less hesitation to pay higher taxes in the U.S. if there was even a modicum of confidence that the dollars would be used with even some minor degree of efficiency and competence. The decline in these attributes is decades long and continuing down. Same goes for many of the individual state and city governments who embody the same malaise with the added aspect of being able to waste not only state generated revenue but federal dollars as well. Let’s see some progress on this first………..meanwhile the avoidance of taxes to the degree legally possible and willingness to “vote with our feet” and at least move between states (if not the next step) is a growing focus for many.
That’s why I say it’s easy to spend other people’s money.
I’ve come to the conclusion that we U. S. citizens simply do not like to pay taxes. Remember the Whiskey Rebellion? And here we are today, 250 years as a nation, unable to collect the taxes we need to fund our spending.
Good point. The basic problem is we are unable to connect the taxes with what we receive in return both necessary and desirable.
We aren’t even among the highest taxed countries in the world. Social media is overwhelmed with complaints about taxes, claiming “they” steal your money, that anyone over 65 should be tax free, even that taxes are illegal. We are our own worst enemy.
Guess what, the US personal savings rate is far lower than other much higher taxed countries.
The Netherlands for one taxes unrealized income. In addition to a progressive tax on actual income that goes almost to 50%, the Dutch system applies a presumed return to assets and taxes that as well.
Thankfully, I feel blessed with what I have.
I feel no envy or need to “punish” those better off financially than I am.
is It punishment to kick in some taxes that would not make a difference in your lifestyle or knock your net worth a few billion? After all you can’t take it with you!
I always wonder why the filthy rich hate paying taxes. They have more than they could ever spend. Cutting their taxes while cutting services for the mainstream to offset that income loss is mind boggling. Is it an ego thing? Those ‘who die with the most and biggest toys wins mentality’?
The key words and problem IMO are “net worth.” Net worth has been earned, invested. These days those who have accumulated great amounts are targets of envy and in ways becoming scapegoats. They have billions, they won’t miss a few billion.
What about those who have a few million and those who have a few hundred decide they should have some of the millions? Same concept. The amounts involved don’t matter.
We do need changes in the tax code, but not ones that attack success or punish wealth accumulation.
I wish I had been smart enough to be in on the IPOs that created many billionaires.
We can raise taxes without punishing wealth accumulation or attack success. Many of the extremely wealthy pay little to no tax. Many with huge equity portfolios borrow against those and never pay taxes.
20-40% of workers with 401k plans take loans from those plans to avoid taxes. As far as never pay taxes, they give the money to charity or eventually someone else pays taxes.
Yes
The issue with our tax system is we don’t collect enough to pay for all our expenditures. So we either collect more taxes or cut expenditures. We can’t seem to do either one, as a matter of fact we spend more and reduce rates. I might be in the minority but how much would it matter to Bezos or Musk if they paid a few extra billion in taxes every year?
The rich are always the people that make more than us.
i don’t see why Bezos or Musk or any other billionaire should pay a larger percentage in taxes than us. They worked harder than us to get where they’re at. They are the ones that drive this economy. They take the risks while we invest our money in Index Funds. They take their profits and invest them back into the economy to create more jobs. Without them we’d be a third world nation.
We ride their coattails then complain about how much money they have.
That is generally my view as well. We worry about the taxes a few hundred people pay or don’t and forget the tremendous value they directly or indirectly created for society and mostly do so on an ongoing basis.
Who doesn’t want to grow their investments large or small and perhaps leave some of what you achieved to your family?
Don’t tell anyone, but my investments have double since I retired and I haven’t paid any taxes on that either. 🤫
Sorry, got to go, my Amazon package has arrived which I ordered using my Apple IPad right after I ordered some stuff from Walmart, then I’m going shopping for a Tesla (kidding on that one).
As to your last sentence it would only change the number on their bottom line, no effect of their lavish lifestyle.
Likely wouldn’t put a dent (or nick) in the national debt either 😉
Blaming the rich and the phrase “fair share” are mostly political rhetoric.
(This isn’t a knock on your comment David just my opinion.)
As all of us would agree on, adjustments to both U.S. fed tax code and spending are much needed.
The more important question to ask yourselves is what pain are we willing to endure in giving up things we voted for and can’t afford as a country?
If we can’t give up things we either find creative ways, like redefining income, to close the gap or continue borrowing and stick the bill to future generations.
Politicians will always blame the other if they have to be the bearer of bad news to the people they represent.
Per AI in 2024 the average net worth of senators is 3.8 million, representatives is 8 million.
Only 27% of senators, and about 50% of representatives are not millionaires. I know a million dollars ain’t what it used to be, but human nature means they are going to take care of their own, not the roughly 80% of US families who are not.
You can be a millionaire with only a house and a modest investment. Reported wealth of members of congress is household wealth and often is spouses wealth. The reality is a more average American can’t afford to be in Congress.
The US is among the lower taxed countries in the world. We delude ourselves that we can have what we do and not pay taxes or that the taxes will only be paid by the other guy.
Yet we don’t even want to pay to keep what we already need like SS and Medicare. SS can be made sustainable with minor changes including raising the FICA taxes on worker and employer and not excessively, but suggest that and cover your ears.
Look at the maneuvering to avoid IRMAA, sometimes also to avoid taxing SS benefits when those income taxes go into the SS and Medicare trusts. Millions of Americans enjoy paying their employer health insurance premiums with tax free money.
And in the midst of all this, most Americans applaud recent tax reductions and some tax free income.
We are short-sighted, and ignorant, but apparently not unhappy paying a trillion dollars a year in interest expense putting us at a growing risk. if investors start demanding a better return for US debt, we are heading for crisis mode.
Instead of reserving deficits and debt to deal with national crisis, like war and depression, we have made it a way of life like a family maintaining a lavish lifestyle on credit cards.
Dick,
All correct but the last sentence is a great summary statement.
I agree with you, RDQ, in not taxing unrealized gains.
I wonder, however, could changes to the US capital gains tax laws result in more taxes collected overall? Billionaires, as I understand, borrow against appreciated assets rather than selling them, to avoid taxes. Imagine if they sold the assets instead, they would be paying the government and not the banks and perhaps in the process easing some of the country’s budget woes.
I made the “mistake” decades ago to buy and hold tech stocks. This has led to concentrated positions in my taxable account that I would prefer to liquidate were it not for tax considerations. I would begin selling immediately, to lowers risks, if capital gains on equities were, for example, taxed like qualified dividends and not as income. Given the current tax code, and assuming I continue to hold, the government will never collect on my gains because of the stepped-up basis upon death.
Long term capital gains are taxed like qualified dividends.
The tax rate for 95% of taxpayers on capital gains is only 15% or 0%. The issue for the super wealthy is also dilution of their company ownership by selling shares.
I continually hear “tax the rich, tax the rich”! How many Americans are aware that the top 10% pay over 70% of all federal income tax?
The gap between the very wealthy and everyone else is wide and growing. Allowing very wealthy individuals to pay little or no tax because they fund their lifestyle by borrowing against their equities is gaming the system. My wife and I, retirees, are comfortable and have no worries about running out of money as we age. We would gladly pay additional taxes to ensure that there is more affordable housing and fewer people struggled from paycheck to paycheck. Yes, the top 10% pay 70% of the income taxes. They should be glad that they have enough to eat and have housing they can afford.
“… the top 10% pay 70% of the income taxes.”
Yes, but the question is what percentage of their billions of dollars of increased wealth (you can’t say income because of how they legally game the system) is taxed. As Warren Buffet once said he should be paying a higher percentage of taxation than his secretary.
I’m not sure how all the numbers are actually calculated but not only are the top 10% paying 70%, the top 1% are paying nearly 40%, so yes, the rich are paying a pretty fair share. Mind you, the bottom 50% ( after reflecting the refundable Earned Income Tax credit) are paying near 0%. Dick, is right our taxes compared to other countries is low but I believe our system is, in fact, the most progreesive in the western world.
No one is stopping YOU from donating to food pantries or homeless shelters.
How do you know they don’t?
Winston, we do donate to food banks and housing non-profits. However, our efforts and those of many others is not sufficient to address the needs of others.
As a nation we need to move beyond the idea that those who are impoverished, in poor health, or unhoused are solely responsible for their circumstances.
I was in born into a family of great privilege. Not in terms of fiscal assets as much as social capital. Family, education, and community were primary values that supported and shaped my career path (and that of my siblings). I had no hand in selecting the family and community into which I was born. My family did not experience great dislocation and poverty associated with plant closings, natural disasters, chronic disease or accidents. In the US, many who experience those events are up a creek with out a paddle unless they have family to assist them. Private, charitable organizations do not have the capacity to assist all who need assistance. In the Nordic countries and many other developed countries, government programs support individuals and families in dire straits. In the US we complain loudly about our tax burden and denigrate those who need public assistance. As R. Quinn noted earlier in this thread, the US is one of the lower taxed countries in the world.
Here’s a relevant podcast: https://www.nytimes.com/2026/04/17/opinion/ezra-klein-podcast-ray-madoff.html?smid=nytcore-android-share
I’ve got no problem debating the merits of taxing the rich, but to me, taxing unrealized gains makes even less sense than a flat tax. Consider that many HumbleDollar readers probably hold a million bucks or more, and that they have at least half of that, say $500K, in the stock market. The S&P is up about 27% in the last year, so this person could easily have unrealized gains of $135,000, which would be added to their taxable income. I do not think that this taxpayer is going to be very happy about supporting a tax on unrealized gain.
Dan,
You are right in your assessment, but you are looking at the situation from the perspective of a millionaire. Try looking at taxation from a different perspective. How do you think the roughly 80% of American families that do not have a net worth of 1 million dollars, or 70% that make less than 135K per year look at the situation?
Under this hypothetical scenario, unrealized gains would be taxed each year like current income, correct? If so, we would also expect the IRS to issue refund checks in years investors have unrealize losses. A billionaire example: In 2022, Jeff Bezos had ~$50M in unrealized losses on his Amazon stock. Assuming a 23.8% maximum rate on capital gains per Google, the IRS would have owed him $11.9M that year. Imagine the public outrage when the government writes that check!
David, I hear you.
The other thing that concerns me about this issue, is the complexity of taxing a constantly moving target. And what would the legislation look like after the lawmakers muddied it up with carve-outs for their friends (and donors)?
I’m thinking out loud here. Is there an alternative to taxing unrealized gain? Perhaps cutting back on the step up in value for amounts over a certain dollar value? Reducing the estate/gift tax exclusion?
I don’t know the answer.
Slightly off topic, but a friend of mine, a tax inspector with the UK’s HMRC (our equivalent of the IRS), always argued that borrowing against assets should be subject to a consumption test: if the borrowed capital can be shown to have funded personal spending, it should be taxed as income. He was really just venting about the broader buy, borrow, die problem. His nuclear option, when pressed after a few drinks, is to abolish the step-up basis entirely as is the case in the UK. But then, he is a tax collector 😂
A widowed client, age 95, received about $30,000 per year in dividends from ExxonMobile. She had inherited the shares from her husband, who had worked for the company. Her closest living relative, a nephew and sole beneficiary, was handling her affairs during her final days. He was instructed to sell the stock before she passed. I explained why that wasn’t a good idea.. AI just calculated that the stock was probably worth about $750,000 at the time of her death. He thanked me for the advice, but didn’t give me a tip, the cheapskate.
Your story puts a human face on the receiving end of those bar talk changes. For a family dealing with end-of-life care, a massive, immediate tax bill on a lifetime of savings is the last thing they need.
I guess it really just depends on the lens you look through. To one person, it’s a private family transition that should be protected from the state. To another, it’s an unplanned windfall that should be taxed, conceptually not that different from a winning Powerball ticket landing in the nephew’s lap.
No matter what…he’s definitely a cheapskate. A case of wine was in order for that advice!
It took me from 1961 in my first job until 2010 to achieve a net worth exceeding $1 million. We had virtually nothing before 1982 when we gained access to a 401k. The greatest period of accumulation was the five years before 2010.
There are too many people who look at those with a pot of gold and ignore the long, sometimes bumpy road to reach it.
A road that is open to the great majority of people who want to take it and pay the tolls along the way.
Dick,
The same was the case for my wife and I, and were did not make a combined 100K in income until very late in our careers, so I do understand the long and bumpy road.
My point is that you and I and most likely the vast majority of HD readers are in the 20% of those with a net worth of 1 million it more, and I was pointing out that the vast majority of American families have a different perspective which I think many of those in congress never think about.
I think you are correct. The median net worth of Americans is about $192,000 while the average is just over $1 million. So, at least half have a very different perspective, especially since that includes their homes.
Neither do I.