Unrealized Gain to Go Down the Drain

The Paper Tiger that Bites

Kamala Harris isn’t the only Democrat in government champing at the bit to tax unrealized gains. Most Americans are oblivious to this sort of thing, but here’s a short explainer that you can read on your way to the homeless shelter. Most Democrats like to talk about unrealized gain—or as they’re truly called—unrealized capital gain (and say “capital” with a Marxist sneer), and they use the stock market as an example. Only approximately 61% of all Americans (162M) are invested in the stock market, and many are invested in mutual funds or 401(k) plans that render the owner somewhat oblivious to their actual portfolio (other than occasional reports that show the sum of investments). But unrealized capital gains can also occur with a house and home ownership is something we can all relate to.

Let’s say you buy a house and you pay $200,000 (you’re buying in Texas). Chances are, you’ve made a down payment and have some sort of mortgage in place. Now the tax appraisers come around the next year and say, “Your house is worth $240,000.” The tax people in Texas do this all of the time. (They say Texas has no state income tax, which is true, but fail to mention that we have ravenous property taxes.)

On paper, you have made $40,000. That doesn’t mean you have $40,000 in your hot little hands. It means that, on paper, should you sell your house at what the tax people say is the appropriate value, you would have a profit of $40,000. That profit is called a “capital gain.” If you don’t take it but let it ride, it’s an unrealized capital gain.

A tax on unrealized capital gain means that as soon as that $40,000 paper profit shows up at the end of the tax year, so does one of the new 87,000 IRS agents who are, yes, licensed to carry weapons. The proposed tax on that capital gain is 25%. So you have to give a quarter of your paper profit of $40,000 (namely $10,000) to the taxperson. (I’d say taxman, like the old Beatles song, but I think that’s an outdated term.) Click here for a musical interlude.

The key thing to remember is that you don’t actually have the $40,000. It’s unrealized, meaning you have not benefited from it. You don’t have $40,000 in money. But you have to cough up the $10,000 in cash, the IRS doesn’t accept unrealized payments.

Let’s continue with the Democratic dystopian nightmare for a moment. Let’s say the housing market crumbles. Things like this have happened in the past. You still have the same house and you still paid $200,000 for it, but now it’s only worth $150,000, and that’s if you could even sell it at all. People who’ve lived through real estate crises know that sometimes there aren’t even buyers! So now you’ve lost money on paper. You have an unrealized loss.

However, the taxperson still keeps the $10,000 you paid last year. You don’t get to write off your unrealized capital loss. I don’t think that’s a term the IRS even recognizes.

Imagine, instead, that your house goes up incrementally year after year. You have to pay a quarter of that to the government, even if you’re cash poor yourself. You may have to take out a loan to pay your unrealized capital gain tax. If your house doubles in value over 20 years, you’ll have paid a quarter of the original selling price to the government.

It’s the same for stocks. Let’s say you bought NVIDIA (still a good stock to buy) at $100 a share, and it was in that neighborhood in late July 2024. Let’s say you bought 100 shares, so you made $10,000 investment (100 shares at $100 each). The stock is a strong one and let’s say by the end of the year, the stock price hits $200 a share and your $10,000 investment is now worth $20,000. Your unrealized capital gain is $10,000 so you have to pay the government $2,500 even if you don’t sell the stock.

Let’s say you don’t have the cash on hand, so you’re forced to sell the stock. The government does not pay you compensation if your forced liquidation of some of this valuable stock ends up costing you money when the stock goes up even more, say to $300 a share.

Right now, the Democrat platform is calling for a tax on unrealized capital gain but it says only for people who make over $100M a year.

This is a ploy.

People who make over $100M a year have excellent tax attorneys, tax shelters, offshore accounts, private planes, and a bunch of other tricks we cannot even imagine. The reason the government claims they are rolling this out for the super-wealthy is that the sites are actually on us—the little guys. Once the unrealized capital gains tax goes into effect, it’s going to be ratcheted down to the middle class.

The Democrats are calling this the “Billionaires’ Income Tax,” but you have to remember they have a way with words.

• They also called the legislation that caused inflation “The Inflation Reduction Act”

• They called the legislation that put billions into the pockets of special interests while not expanding high-speed internet to rural areas and not building car charging stations the “Build Back Better Plan”

• When you take sexually explicit books on homosexuality and transgenderism out of elementary school libraries, they call that “book banning”

• Remember Florida’s law the Democrats called “Don’t Say Gay”? The law did not prohibit saying the word gay

• They call January 6 an “insurrection” and the George Floyd riots of 2020 “mostly peaceful protests”

• They say Donald Trump is a convicted felon because of a series of paperwork errors but Biden is the most corrupt person to ever sit in the White House and Nancy Pelosi wants to put him on Mount Rushmore

You get the picture—what Democrats say tends to be the opposite of what is actually true. Bearing this in mind, realize the “Billionaires’ Income Tax” is really going to be the “Middle Class Annihilation Act.”

Who supports this monstrosity? Well, besides Madame Joyful:

• Ron Wyden (D, OR)

• Debbie Stabenow (D, MI)

• Bob Casey (D, PA)

• Sheldon Whitehouse (D, RI)

• Liz Warren (D, MA)

• Brian Schatz (D, HI)

• Mazie Hirono (D, HI)

• Tammy Baldwin (D,WI)

• Sherrod Brown (D, OH)

• Bernie Sanders (I, VT)

• Jeff Merkley (D, OR)

• John Fetterman (D, PA)

• Tina Smith (D, MI)

• Peter Welch (D, VT)

• Jack Reed (D, RI0

• Ed Markey (D, MA)

That’s the list of 15 communists, I mean esteemed Democrat Senators, who proposed the legislation. I suggest you take them off your Christmas card list.

They are trying to sell us the idea that Democrats are coming after only the billionaires. That’s funny, I saw a couple of uber-rich people at the Democrat National Convention (DNC) last night. In fact, with the exception of Trump, Musk, and now Peter Thield, I don’t know of too many billionaires who are not Democrats. The party of billionaires is telling us they’re going to “go after” billionaires. That’s like Trump saying he’s going to start imposing heavy taxes on working people. (Generally politicians don’t punish their base by overtaxing them.)

The people who are going to pay will be us. Forbes, the writers of which generally can’t help slobbering all over the page when it writes about liberals doing liberalism, have already written that such legislation would amount to a “sea change” in American taxes. I think the Titanic suffered a sea change, too.

Such bastions of prosperity as Moldova (6%), Bulgaria (10%), and Romania (10%) tax unrealized capital gains. Other European countries such as Norway tried to tax unrealized capital gains, found the rich people all left the country, and ended up having to rescind the rule. As punishment, Norway demands that all citizens pay 37.8% (more than a third) on all realized capital gains. So if you sell your house and make $50,000 in profit, cut the government a check for $18,900.

Slovenia has a more enlightened policy, in that it dispenses with all capital gains taxes on any asset held 15 or more years, so if you sell a house you’ve kept for a while, you might actually get to keep the money. Switzerland, always the rogue, does not tax capital gains at all, but many European nations require realized capital gains to be taxed the same as income. In other words, if you made $50,000 selling a house this year, you have to declare that $50,000 as part of your income.

Bottom line: most countries do not tax unrealized capital gains. Even America’s communist hat, Canada, doesn’t tax unrealized capital gains. But Biden wanted to and Harris put her name to that platform. It’s unclear if she knew what she was signing.

It’s even unclear where she was. The presumptive nominee at the DNC bailed on Day 3 of the convention. The president and former presumptive nominee bailed the day before. It was like Thanksgiving with liberal relatives: Biden couldn’t be there if Kamala was going to be there and Kamala can’t be there if Obama is going to be there. And Jill Stein and RFK, Jr. sure can’t attend at all, in fact, they better not even be looking in the window. Then Nancy Pelosi showed up and they all ran for cover. There is so much infighting they had to get now-skinny Oprah (thanks, Ozempic!) to be one of the speakers and she would not even say she was a Democrat! Did you catch how she’s an independent now? (I don’t think Oprah has ever voted for a Republican. I think by “independent” she was trying to lure the RFK voters over. Or she wants plausible deniability that she was a Democrat shill when this is all over.) Plus the rent-a-rioters and the triple fence around the convention center add a layer of merriment to this year’s DNC theme of “joy.” I also liked how they roused an aging and decrepit Bill Clinton from the crypt to give a message about moving “forward” into a vibrant new movement, unburdened by the past. I hate to tell you this, Democrats, but that guy was President 30 years ago! And if he were running today, I doubt he’d even be a Democrat.

More on the DNC when it’s over… I mean when the actual event is over. The Democrat party as a meaningful American institution is already over.