Preparing for a capital gains tax increase (US)

[zanezane]

I don't se this tax gain getting passed in the Senate, to me it is just to make noise because of the campaign promises he made during election campaign. I read somewhere that some of these Billionaires are getting divorced because of this coming Capital gain tax to protect themselves, rich people are not stupid and if it happens to pass, they will find a loop hole around it

They have alread found a way to avoid these taxes legally because they have almost anything at their disposal, from artworks that can be used for tax write offs, to donations to charities and other shady ways they can evade taxes legally.

[1713555398]

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[1713555398]

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[Poker Player]

Tax increases like this, which in theory are meant to screw the rich, only screw those who are on their way to getting rich.

Does anyone really think that the billionaires, the Rothschilds, etc. are going to get screwed much? Those who have billions in Real State or stocks are not going to sell, they don't need to, plus they get rents and dividends. If they need more money, they can borrow. If there is one thing these people are known for, it is for almost never selling and for minimizing the payment of taxes.

The one who is really going to get screwed is the one who, not being rich, invested in a company, or in bitcoin, or some crypto, and seeing that the price has risen a lot, wants cash out to diversify, because just as it has risen a lot, it can go down.

[jaysabi]

I don't se this tax gain getting passed in the Senate, to me it is just to make noise because of the campaign promises he made during election campaign. I read somewhere that some of these Billionaires are getting divorced because of this coming Capital gain tax to protect themselves, rich people are not stupid and if it happens to pass, they will find a loop hole around it

They have alread found a way to avoid these taxes legally because they have almost anything at their disposal, from artworks that can be used for tax write offs, to donations to charities and other shady ways they can evade taxes legally.

Generally, if you're donating money to charity, you don't have the money in your possession anymore, so you're not evading taxes by using the donation to lower your tax burden.  This isn't a loophole, that's literally the intended purpose of charity tax write offs.  Also, you can't buy art to dodge taxes.  There's no tax write off for buying art.

[icopress]

[...]

.. By filling out your tax return, you yourself can deduct the amount that was spent on charity ^[1] But this amount cannot be more than 30% or 50% of your annual income, (% depends on the type of organization to which donations are addressed). As far as works of art are concerned, if my memory serves me, tax breaks are valid only if you decide to choose this type of donation, (in the sense that you can also enter the equivalent of the value of the paintings or other items of value you donated on your tax return). In short, it all comes down to expediency ... to donate money to charity, thereby pleasing your "amour-propre", or to pay taxes ..

[theymos]

Update: Biden released a proposal which would make the tax increase retroactive to sales made on or after April 28 of this year. However, I consider the chance of this actually making it into the final bill to be very small: probably less than a 5% probability. It's still a risk, though. If this goes through, there are probably several newly-minted crypto millionaires who will go from millionaire to ~broke due to realizing a lot of gains, not planning for an absolutely huge tax bill which isn't even law yet, and spending or recklessly-investing all of their gains...

Some people (eg. Cathie Wood) seem to think that the capital gains tax increase is no longer likely, but I don't agree at all. I still think that some increase is quite likely, with the same probabilities as I listed in my original post.

I guess the first test will be paying the bill of the X$ a month given to people during COVID. And let us have no doubt, this bill has not been paid yet and will not appear evident until the money starts circulating full speed and creating the inflation that CB just cannot afford given the debt of most countries. Who wants to bet on when and how intense the bill shall be and how will affect the average joe with a mortgage larger than life?

I don't think that the spending so far is beyond what the economy can endure, so I think that the "bill" will more likely be paid as stagnation and low growth over many years rather than continuing inflation. The deflationary forces (technology, the reduction of labor's value/importance/leverage, demographics, government drag, etc.) are very strong, so while lasting inflation is definitely possible, and government action can definitely cause it if they keep pursuing ultra-inflationary policies, 3%+ inflation lasting many months is not my base case, and if it did happen, it'd probably point toward some sort of more catastrophic economic breakdown. Later this year, I expect (but not with very high confidence) CPI to surprise the market to the downside, and the US may even enter a recession.

(Economic stagnation is probably a good environment for the BTC price, BTW. Though there are other downside risks that could certainly offset this.)

You would abolish government and stay in place as dictator emperor like Caesar?

No: I'm an ancap, so I'd work toward ending the state entirely. Exactly how this would be done would depend on which ridiculous hypothetical is under consideration. In any hypothetical scenario with even a dash of reality thrown into it, I'd be very likely to at least mostly fail to end the state; if for example there was a military coup and they named me emperor from out of nowhere, I'd almost certainly be assassinated within a week, and in any case I'd probably largely fail to effectively take advantage of the situation due to lack of the relevant skills on my part.

Anarcho-capitalism probably can't be achieved unless/until at least 20% of the population has some understanding of it and believes that it could work and be an improvement. So it's not happening anytime soon.

Two of the biggest problems with modern politics are:
 1. Government interference in everyday life has been relatively less in the last couple of generations than in the past, and so people have forgotten how much government sucks. People have also spent the majorities of their lives in government-run institutions. As a result, people believe that the obvious solution to any problem is for the government to solve it. While the government can solve many problems, it always does it extremely inefficiently, so too many government "solutions" drag down the entire economy. And if solving the problem requires deciding between trade-offs or competing interests, as is often the case, then the government "solves" the problem in an arbitrary and usually very unfair, unethical, and irrational way. People want to solve every problem with the government, but the more this actually happens, the worse things get.
 2. People believe in democracy as a goal unto itself, but too much democracy gives poor results. Making things more and more democratic, as many people want to do, usually makes things worse and worse. The average person makes very poor policy decisions, in large part because it's rational for them to be ignorant of policy. (Who actually thinks that Joe Biden or Donald Trump are anywhere close to being the most rationally effective heads of the executive branch, for example?) There's also nothing about democracy which makes it inherently more ethical than any other form of state: it's still one group of people using violent aggression on another group to get what they want. Societies/states would be more effective if they had a more reasonable end goal in mind (eg. "increasing our citizens' wealth, freedom, and happiness"), and then they viewed any democratic elements of the state as merely a tool to get to this end goal. If "maximize democracy" is your end goal, then you're headed for dystopia.

If a state is to exist at all, I think the most effective situation would be for the entire culture to have intense skepticism of government, for the state to be run by a fairly entrenched "aristocracy", but for a democratic "safety valve" to be able to shake up the aristocracy when they get too comfortable and ineffective. You want to avoid the current situation in many Western countries where politicians can't feel secure for even a minute and so they always think politically rather than rationally. But you also want to avoid the situation in autocratic regimes where the leadership feels completely free to do absolutely anything they want on a whim.

[zanezane]

~

Generally, if you're donating money to charity, you don't have the money in your possession anymore, so you're not evading taxes by using the donation to lower your tax burden.  This isn't a loophole, that's literally the intended purpose of charity tax write offs.  Also, you can't buy art to dodge taxes.  There's no tax write off for buying art.

It can be used, I just felt like never talking about it. You know how in fine arts world, they sell some works of some artist that doesn't have any talent? They sell it to rich people and the rich people have a connection with some famous art appraiser and they will appraise the work at an exorbitant amount to cover the bribe for the appraiser and then the rich guy donates it for the overly appraised price and he will be able to do a write since it was counted as a donation.

[PrimeNumber7]

Update: Biden released a proposal which would make the tax increase retroactive to sales made on or after April 28 of this year. However, I consider the chance of this actually making it into the final bill to be very small: probably less than a 5% probability. It's still a risk, though. If this goes through, there are probably several newly-minted crypto millionaires who will go from millionaire to ~broke due to realizing a lot of gains, not planning for an absolutely huge tax bill which isn't even law yet, and spending or recklessly-investing all of their gains...

I don't think there is any proposal to eliminate the ability to offset capital losses to capital gains, so someone who invests recklessly, and loses a large portion of their fortune would be able to use those losses to offset any gains they had from earlier in the year. If they spent a portion of their fortune, and subsequently recklessly invested in something, this might be a different story.

The deflationary forces (technology, the reduction of labor's value/importance/leverage, demographics, government drag, etc.) are very strong, so while lasting inflation is definitely possible, and government action can definitely cause it if they keep pursuing ultra-inflationary policies, 3%+ inflation lasting many months is not my base case, and if it did happen, it'd probably point toward some sort of more catastrophic economic breakdown. Later this year, I expect (but not with very high confidence) CPI to surprise the market to the downside, and the US may even enter a recession.

It is far more likely that inflation will exceed norms to the upside than it will to the downside. There are currently shortages of many things that help produce goods/services (commodities and labor), and there is a pent up demand for discretionary, and non-discretionary goods/services due to massive government stimulus in the form of direct payments, and via low interest rates that have pushed up asset prices, and lowered mortgage payments.

The economy contracted in 2020 via artificial means (lockdowns) by too much, and there is too much pent-up consumer demand (due in part to direct stimulus payments, and enhanced unemployment benefits payments) to expect a recession in the immediate or near term. The US may see a recession in the medium term resulting from stagflation, and crazy economic policies implemented by the Biden administration.

[theymos]

I don't think there is any proposal to eliminate the ability to offset capital losses to capital gains

Imagine that you made $2 million in long-term BTC gains by buying in March 2020 and cashing out 100% during the highs of 2021, and then you decide to put all of your money into shares of AMC. Then you realize in April of 2022 that you owe over $800k in taxes. At that point it's too late to apply capital losses, since it's now the year after you made the gains. Capital losses don't carry backward at all, and they only carry forward a very small limited amount per year. In this scenario, you have to hope that your AMC shares are still worth at least $800k, or else your net worth will probably now be negative.

It is far more likely that inflation will exceed norms to the upside than it will to the downside.

I'm very curious to see how it plays out! These are unprecedented economic times in many ways.

[dkbit98]

Anarcho-capitalism probably can't be achieved unless/until at least 20% of the population has some understanding of it and believes that it could work and be an improvement. So it's not happening anytime soon.

I think most of the people on earth today don't really know what they want, but we should at least come to the stage when 20% percent of people know exactly what they don't want, by not repeating past mistakes.
The more time goes more I think we are sliding in some dystopian future but I am hoping there we be some split and people will have to choose to stay and live in totalitarian global dictatorship or outside in some anarcho-capitalist and other type of communities.

The economy contracted in 2020 via artificial means (lockdowns) by too much, and there is too much pent-up consumer demand (due in part to direct stimulus payments, and enhanced unemployment benefits payments) to expect a recession in the immediate or near term. The US may see a recession in the medium term resulting from stagflation, and crazy economic policies implemented by the Biden administration.

Anyone who checked official inflation stats could see how they are rigging the numbers to make them look better, so they say inflation is only one or two percent but in reality look at the prices for
Steel +145%, Lumber +126%, Oil +80%, Corn +69%, Coffee +34%, Wheat +25%...
Artificial global lockdowns destroyed everything and they are the last nails in this global reset coffin, but hey at least we can blame it all on corona and save the earth from carbon we breath out and produce all the time.

[Copetech]

Anyone who checked official inflation stats could see how they are rigging the numbers to make them look better, so they say inflation is only one or two percent but in reality look at the prices for
Steel +145%, Lumber +126%, Oil +80%, Corn +69%, Coffee +34%, Wheat +25%...
Artificial global lockdowns destroyed everything and they are the last nails in this global reset coffin, but hey at least we can blame it all on corona and save the earth from carbon we breath out and produce all the time.

If only I had Merit to give!


If we look back 250 years to the US founder's original intent, we'll find that they really put a great deal of knowledge and innovation into writing what boils down to a phenomenal AnarchoCapitalist framework. Unfortunately, over the last 150-175 years it has been chipped away, bit by bit, until we barely have any restraints against tyranny left.
"A Republic, if you can keep it..."

[PrimeNumber7]

I don't think there is any proposal to eliminate the ability to offset capital losses to capital gains

Imagine that you made $2 million in long-term BTC gains by buying in March 2020 and cashing out 100% during the highs of 2021, and then you decide to put all of your money into shares of AMC. Then you realize in April of 2022 that you owe over $800k in taxes. At that point it's too late to apply capital losses, since it's now the year after you made the gains. Capital losses don't carry backward at all, and they only carry forward a very small limited amount per year. In this scenario, you have to hope that your AMC shares are still worth at least $800k, or else your net worth will probably now be negative.

You're right, if someone were to realize capital losses in a year after they realized capital gains, they would not be able to offset the capital gains with losses. If your scenario is changed such that someone sold their AMC shares prior to the end of the year in 2021, if they sold their AMC shares at a loss, that loss would offset gains from 2021. Your scenario is somewhat similar to a trader who was had a $800k tax bill on ~$45k in trading earnings due to the wash sale rule (based on the facts presented in the article, I believe he probably qualifies as a "professional trader", which would exempt him from the wash sale rule).

You bring up AMC as being a reckless investment...the price of AMC stock has gone from ~$2 to over $60 at its high. Nothing has changed regarding AMC's fundamentals this year, and if anything, AMC's long-term prospects are weaker than they were going into the pandemic as people will be content with not going out to the movies. I don't think those buying AMC stock are even speculating on it's underlying financial performance, but are rather using excess money from the government to bet they can make more money via the greater fool theory. There are many stocks with similar patterns. People are throwing money at NFTs like candy, that has no real value other than bragging rights.

My concern with the above is that a lot of speculative money has also gone into crypto. I believe bitcoin has real long-term value, but my concern is what happens once all this mania ends, and it will end, probably sooner rather than later. I think there will be a blood-bath with bitcoin (and other crypto prices), and it wont be pretty. It will probably spill over from a similar blood-bath in other asset prices.

It is far more likely that inflation will exceed norms to the upside than it will to the downside.

I'm very curious to see how it plays out! These are unprecedented economic times in many ways.

There is an eviction moratorium right now, and millions of mortgages are in forbearance. This is while the unemployed have been receiving direct payments in the form of unemployment that is often greater than the wages they were receiving. The delinquency rates on rent, and the number of people on mortgage forbearance programs are not consistent with the unemployment rate, and the size of unemployment payments. It is possible that some of the money that should have been used to pay for rent and mortgage payments, instead went to things like AMC stock, NFTs, and other speculative investments. The only way I see near-term deflation is if these rent and mortgage payments need to be repaid on a large scale, and people start cashing in their "investments", and the price declines from these investments spills over into other asset prices like commodities and homes. I think it is unlikely the mortgage payments will need to be repaid immediately because the GSEs will likely allow homeowners to essentially turn 30-year mortgages into 31-year mortgages, and to pay the year of missed payments after they would've normally paid off their mortgage. Delinquent rent payments might be a different story, but I think many landlords will be willing to forgive back rent in exchange for renters moving out to prevent their units being tied up by non-paying renters.

The economy contracted in 2020 via artificial means (lockdowns) by too much, and there is too much pent-up consumer demand (due in part to direct stimulus payments, and enhanced unemployment benefits payments) to expect a recession in the immediate or near term. The US may see a recession in the medium term resulting from stagflation, and crazy economic policies implemented by the Biden administration.

Anyone who checked official inflation stats could see how they are rigging the numbers to make them look better, so they say inflation is only one or two percent but in reality look at the prices for
Steel +145%, Lumber +126%, Oil +80%, Corn +69%, Coffee +34%, Wheat +25%...
Artificial global lockdowns destroyed everything and they are the last nails in this global reset coffin, but hey at least we can blame it all on corona and save the earth from carbon we breath out and produce all the time.

Commodity prices are through the roof. These prices are not heavily factored into CPI inflation numbers because it is rare for a consumer to directly buy steel or lumber. Over time, these prices will have to result in higher prices at the cash register for consumers. Companies have been able to draw on their existing inventories of commodities they use to make their goods, and otherwise absorb price increases, but this will not last forever.

[dezoel]

I understand that people look at the grand scheme of things and assume that when government takes more taxes things starts to be bad, but unfortunately it is not about government in general, it is about which government that takes your taxes.

For example, in places like Russia or China or Cuba they claim to be communist but what is communism in idea? Shouldn't it be everyone be equal? Then why do we have people who are super wealthy beyond logic at the top, and people who work for few cents per hour at the bottom? How is that even equal? So USA citizens see these and think that government is bad, and I agree, THOSE governments are bad, so let's not go full on communism because obviously it doesn't work and never worked. But, how about European style capitalism?

I mean there are ton of amazing companies in Europe that makes billions upon billions of dollars profit, yet they have free healthcare and free education and social help to poor, which means capitalism and humanity can work together without becoming communism.

[boumalo]

I understand that people look at the grand scheme of things and assume that when government takes more taxes things starts to be bad, but unfortunately it is not about government in general, it is about which government that takes your taxes.

For example, in places like Russia or China or Cuba they claim to be communist but what is communism in idea? Shouldn't it be everyone be equal? Then why do we have people who are super wealthy beyond logic at the top, and people who work for few cents per hour at the bottom? How is that even equal? So USA citizens see these and think that government is bad, and I agree, THOSE governments are bad, so let's not go full on communism because obviously it doesn't work and never worked. But, how about European style capitalism?

I mean there are ton of amazing companies in Europe that makes billions upon billions of dollars profit, yet they have free healthcare and free education and social help to poor, which means capitalism and humanity can work together without becoming communism.

The US already has a huge government, the problem is not that the government spends too little.

Projections for 2021 :
Overlay 5,8 Trillions $
Revenues 3,5 Trillions $

[henmark]

I don't think there is any proposal to eliminate the ability to offset capital losses to capital gains

Imagine that you made $2 million in long-term BTC gains by buying in March 2020 and cashing out 100% during the highs of 2021, and then you decide to put all of your money into shares of AMC. Then you realize in April of 2022 that you owe over $800k in taxes. At that point it's too late to apply capital losses, since it's now the year after you made the gains. Capital losses don't carry backward at all, and they only carry forward a very small limited amount per year. In this scenario, you have to hope that your AMC shares are still worth at least $800k, or else your net worth will probably now be negative.

It is far more likely that inflation will exceed norms to the upside than it will to the downside.

I'm very curious to see how it plays out! These are unprecedented economic times in many ways.

It is rare that I end up responding to the man himself! However one thing I am wondering (serious question), if you are earning, and then you are paying taxes for what you are earning, then you do not stop and you end up losing money to taxes, isn't that a sort of good thing for the population? Sure horrible for you but sounds good for the population isn't it? I mean you DID make that profit, then you basically restarted again to make a profit and ended up a loss, that's normal.

If we didn't taxed people until they sell and get out, that would be basically someone buying a stock and not selling it until they die and that would make the community bad because there are people making tens of billions of dollars profit while not selling anything at all, which would be bad for the taxes. At the end of the day, I would prefer people to pay taxes on their profits, and if they want to sell and get out that's fine, if they stay in, aren't they taking that risk?

[jaysabi]

[...]

.. By filling out your tax return, you yourself can deduct the amount that was spent on charity ^[1] But this amount cannot be more than 30% or 50% of your annual income, (% depends on the type of organization to which donations are addressed). As far as works of art are concerned, if my memory serves me, tax breaks are valid only if you decide to choose this type of donation, (in the sense that you can also enter the equivalent of the value of the paintings or other items of value you donated on your tax return). In short, it all comes down to expediency ... to donate money to charity, thereby pleasing your "amour-propre", or to pay taxes ..

My point was that donating money to a charity is not a tax dodge because there is no financial benefit to you in giving your money away.  Tax dodging is hiding income or under reporting your assets with the intention of keeping that money and not paying tax on it.  The difference is whether or not you keep the money.

[The Sceptical Chymist]

I don't se this tax gain getting passed in the Senate, to me it is just to make noise because of the campaign promises he made during election campaign.

I don't know what it takes to pass laws like this (I never paid attention in high school to whatever subject covered that), but somehow I suspect this will come to fruition for Biden.  My understanding is that this capital gains tax law is designed to tax the rich, but to me it's double taxation.  I earn money on which I pay taxes, and then I invest that money in an asset that grows in value--but I don't sell it.  I'm supposed to pay tax on unrealized gains?  That's fucking bullshit.

The government in the US is taxing its citizens to death while simultaneously printing money like there's no tomorrow, which all but guarantees out-of-control inflation at some point.  Think about it: there's income tax, sales tax, property tax, capital gains tax, inheritance tax--there are so many different flavors of tax that I'd have to create a list longer than all of our dicks combined just to include them all.

And even if this is aimed at the wealthy, you'd better believe it's going to trickle down to the middle class and the poor.  It always does.

[PrimeNumber7]

I don't se this tax gain getting passed in the Senate, to me it is just to make noise because of the campaign promises he made during election campaign.

I don't know what it takes to pass laws like this (I never paid attention in high school to whatever subject covered that), but somehow I suspect this will come to fruition for Biden.  My understanding is that this capital gains tax law is designed to tax the rich, but to me it's double taxation.  I earn money on which I pay taxes, and then I invest that money in an asset that grows in value--but I don't sell it.  I'm supposed to pay tax on unrealized gains?  That's fucking bullshit.

When you invest money in a stock, and the stock appreciates in value prior to you selling the stock, you will pay taxes on the gain in value you realized. Your cost basis (the price you paid) is not indexed to inflation, so if you hold onto a stock for a long time, your cost basis in terms of buying power could be much lower than it actually is.

Changes to fiscal laws (laws that change government spending and/or tax receipts) only need a simple majority to pass each chamber (assuming the President will sign the law, otherwise it will need a 2/3 majority to override a presidential veto), but there are limitations as to how many of these laws can pass each year. For the tax increase being discussed in the OP (or anything similar to it), all democrats would need to vote in favor of it, including moderate democrats, and those that are in Red leaning states. The changes to tax laws being discussed in the OP are part of the "infrastructure" bill being negotiated among various elected officials. I can't see Republicans signing onto anything this radical.

The government in the US is taxing its citizens to death while simultaneously printing money like there's no tomorrow, which all but guarantees out-of-control inflation at some point. 

The purpose of the tax increases being discussed in the OP is intended to punish the successful. It is as simple as that.

[jaysabi]

I don't se this tax gain getting passed in the Senate, to me it is just to make noise because of the campaign promises he made during election campaign.

I don't know what it takes to pass laws like this (I never paid attention in high school to whatever subject covered that), but somehow I suspect this will come to fruition for Biden.  My understanding is that this capital gains tax law is designed to tax the rich, but to me it's double taxation.  I earn money on which I pay taxes, and then I invest that money in an asset that grows in value--but I don't sell it.  I'm supposed to pay tax on unrealized gains?  That's fucking bullshit.

When you invest money in a stock, and the stock appreciates in value prior to you selling the stock, you will pay taxes on the gain in value you realized. Your cost basis (the price you paid) is not indexed to inflation, so if you hold onto a stock for a long time, your cost basis in terms of buying power could be much lower than it actually is.

Changes to fiscal laws (laws that change government spending and/or tax receipts) only need a simple majority to pass each chamber (assuming the President will sign the law, otherwise it will need a 2/3 majority to override a presidential veto), but there are limitations as to how many of these laws can pass each year. For the tax increase being discussed in the OP (or anything similar to it), all democrats would need to vote in favor of it, including moderate democrats, and those that are in Red leaning states. The changes to tax laws being discussed in the OP are part of the "infrastructure" bill being negotiated among various elected officials. I can't see Republicans signing onto anything this radical.

The government in the US is taxing its citizens to death while simultaneously printing money like there's no tomorrow, which all but guarantees out-of-control inflation at some point. 

The purpose of the tax increases being discussed in the OP is intended to punish the successful. It is as simple as that.

Maybe you don’t know what the word “punish” means or maybe you just too easily post in anger, but the tax is very obviously not intended to punish the successful. You can be against the proposal but ranting in hyperbole doesn’t make your point look reasonable.