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The tax on unrealized capital gains

Summary:
Maybe I don’t understand how the supposed plan is supposed to work.  There is no tax credit for unrealized capital losses, right?  So you won’t want to hold volatile asset classes any more, right?  Imagine the value going up, you pay some tax, and then the value falls and you move into loss territory.  You still paid the tax!  You get nothing back.  By exactly how much do the prices of these assets have to fall, ex ante, so that holding them is a good idea in the first place?  Or maybe the wealthy investors subject to this tax are not significant enough to on their own move market prices, in which cases they are just pushed out of these very risk asset classes? If you can deduct unrealized losses, just how much revenue will the bill raise?  Might the wealthy be incentized to hold ever yet

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Maybe I don’t understand how the supposed plan is supposed to work.  There is no tax credit for unrealized capital losses, right?  So you won’t want to hold volatile asset classes any more, right?  Imagine the value going up, you pay some tax, and then the value falls and you move into loss territory.  You still paid the tax!  You get nothing back.  By exactly how much do the prices of these assets have to fall, ex ante, so that holding them is a good idea in the first place?  Or maybe the wealthy investors subject to this tax are not significant enough to on their own move market prices, in which cases they are just pushed out of these very risk asset classes?

If you can deduct unrealized losses, just how much revenue will the bill raise?  Might the wealthy be incentized to hold ever yet riskier assets in that case?  And how will debt assets be treated?  What exactly is equity anyway?  Do all options and derivatives positions have to be considered as well?  (If not there is a massive arbitrage opportunity, hold some assets with a big chance to take losses but hedge your position with derivatives.)

Has anyone estimated all this and figured it out?  Should we pass such a tax bill without such estimates and public debate?  Isn’t that kind of democracy “good”?  What would The Party of Science say?

What am I missing here?

The post The tax on unrealized capital gains appeared first on Marginal REVOLUTION.

Tyler Cowen
Tyler Cowen is an American economist, academic, and writer. He occupies the Holbert C. Harris Chair of economics as a professor at George Mason University and is co-author, with Alex Tabarrok, of the popular economics blog Marginal Revolution. Cowen and Tabarrok have also ventured into online education by starting Marginal Revolution University. He currently writes the "Economic Scene" column for the New York Times, and he also writes for such publications as The New Republic, the Wall Street Journal, Forbes, Newsweek, and the Wilson Quarterly.

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