Taxes: Modern Day Slavery
The Biden administration has released its new tax proposal and it is eye opening to say the least.
Below we will discuss the proposal and its ramifications. Buckle up.
Wealth vs. Income
A common error amongst social media outlets and even people in positions of authority is the constant misinterpretation of wealth and income.
Income is a flow of money such as wages from a job.
Wealth is a stock of money like the value of a house or stocks.
Let’s say you own a home that increases in value by $100,000. You don’t physically own that 100k until you sell the home. Your wealth has increased in value but your income (flow of money) hasn’t changed.
Expecting people to pay on wealth is a fool’s errand and we will explain why as we comb through this new tax proposal from the Biden administration.
Capital Gains Tax Under the New Proposal
The Biden administration just proposed a plan to increase capital gains tax to 44.6% from its current rate of 20%. This would mark the highest federal capital gains rate since its inception.
The top rate would apply to individuals with taxable income above $1 million and investment income above $400,000.
First and foremost, there shouldn’t be a capital gains tax. It is theft.
More importantly, this tax rate will force top earners to flee the United States for more tax friendly countries.
There are some that won’t think much of high earners leaving the country, but they will when it crushes our economy. They will be forced to face the hard truth that the millionaires and the billionaires that socialists like Bernie Sanders yell about, keep this place afloat.
This policy proposal is a great idea only if you have the ability to dodge it with influence or you are a redistributionist. That is, if you’re into confiscation and theft.
Unrealized Gains Tax Under the New Proposal
This plan would also come with a 25% tax on unrealized gains for those with a net worth over 100 million.
The top .1% will now have an automatic 25% tax.
An unrealized gains tax violates the “ability-to-pay principle.” One of the fundamental principles of taxation is that taxes should only be levied according to the taxpayer’s ability to pay. Taxing unrealized gains violates this principle because the gain is not actual income until the asset is sold. I would argue that it isn’t income either but one problem at a time.
How exactly does someone pay this bill when the gain is unrealized? The answer is simple, they will sell assets to foot the bill.
Imagine what will happen to the economy when the wealthiest few start liquidating everything.
For the majority of Americans, investing the small amount of money they have left over from their paycheck is their way to achieve the American dream, it is their way to retire, it is their way to create safety in their life. While they will not pay a 25% unrealized gains tax, they will see their life savings crumble as the wealthy capitulate and sell off assets, crushing asset prices.
The domino effect will destroy everyone under the top 1%. Once again, it isn’t the wealthy that lose, it is everyone else.
Not only will the majority of Americans see a destroyed market, they will be disincentivized to invest. The volatility in the market that this will create will scare even the sturdiest of hands from investing in it.
Think about those that own a stock that sees an increase in value one year, leading to a tax on those unrealized gains, only to decrease in value the next year. This would force someone to pay a tax on a stock that is now less valuable than when they bought it and with money they never received from it.
We could also see the forced selling of stocks from December through April so that people can pay the tax on the gains they don’t have the money for. This will create market manipulation by the wealthiest as they short the market during times of capitulation to pay bills normal citizens can’t afford. Again, the wealthy will get wealthier.
This policy will also create the potential for double taxation. Nearly all assets whose value increases will be taxed twice, once for the unrealized gain of the asset and once when the asset is sold and accrues a realized gain.
This would cause complete destruction.
Estate Tax Under the New Proposal
An estate tax is levied on the death of a person and will go up 60 points to 80%.
By removing what’s called the “step up in basis,” a family business will be taxed according to the value it accrued since its beginning, even if it remains in the family - this will be devastating to small business owners.
A family that built a successful life in order to pass down better opportunities for their children will now see their hard work and opportunity stolen from them.
One of the largest factors determining certain demographics' ability to stay out of poverty is inheritance, most often in the form of property.
This tax will not only destroy families but will destroy the incentive to create and build and thus the American dream.
Revenue Generated Under the New Proposal
The revenue this plan will generate is difficult to forecast and varies wildly based on everything you can look up. Some claim it will generate $7 trillion dollars over the next 10 years, some estimate $4 trillion, and others expect revenues under $1 trillion.
These estimates are impossible to predict considering the measures many will take to avoid these penalties but more importantly, even the largest predictions will not solve our debt problems.
Currently, the United States is paying roughly $72 billion of interest on its debt per month for an annual total of a little over $864 billion per year. It is estimated that this annual total will reach $1 trillion by 2025.
In the 10 year time frame discussed, the revenue generated from the stealing of American citizens’ hard earned money won’t even cover the interest payment on our debt.
The result will be our debt will continue to rise, while the people struggle more than ever.
Complex Code
The main gaslighting tactics:
“We need the wealthiest individuals to pay their fair share.”
“The wealthiest people are only paying an 8% tax rate.”
“How long will we allow the billionaire’s to cheat the tax system!?”
First, fair share is an arbitrary claim and the tax code is incredibly complex on purpose. It allows the wealthy to exploit it. They have the means to hire the best tax attorneys and estate planners to protect their wealth.
If the government were honest, they wouldn’t increase taxes on the wealthy, forcing them to find escape routes that result in the burden being placed on the average American citizen. They would simply untangle complicated tax code into something simple for every person to navigate. They would fight for transparency but they don’t, because they are using the complex tax code in the same manner.
This is about extracting wealth to remain in power. It isn’t about going after the wealthiest individuals. These individuals are their donors and lobbyists. They will be protected but you won’t.
They need you dependent upon the system to survive. The sooner you realize this, the better chance at fighting it.
The Slippery Slope
“A policy like this has no chance of passing,” is one of the most common reactions to bill proposals like this.
I agree, but it is more complex than whether it will pass or not.
To even propose something like this is scary. It lets us know what they really think about us and an insight into the direction they are wanting to go.
The more sinister realization is that this is a slippery slope.
The Patriot Act was originally written and discussed in the 90’s during the Clinton administration. It was said repeatedly that a bill like that couldn’t ever get approval and we all agreed without thinking much of it.
Until 9/11 which gave the Bush administration the reason (and opportunity) to shove it through and we have lived in a permanent surveillance state ever since.
This proposal will be mocked and forgotten until it isn’t. They have told us plenty of times, “never let a crisis go to waste.” But there will be an opening down the road, giving this a chance, and we need be ready to oppose it with the same fervor of today.
Using the above example to highlight the slippery slope. We were told the Patriot Act was to monitor terrorists within our country. They have found zero terrorists from the passing of the Patriot Act but have destroyed the privacy of every citizen daily and allowed corporations and state departments to destroy people’s lives because of this slippery slope.
Many will correctly point out that these tax hikes don’t apply to most Americans, but if it were to pass, how long until we go from a bill that only affects the .1% to a middle class American having to sell their home because the value went up and they can’t pay the unrealized gains tax on it?
Honestly ask yourself, “has the government ever took a mile when they were given an inch?”
Fallout
Money flows where it is least restrictive. The wealth class will flee America for a safer haven of their assets.
If a policy like this were to ever pass, we would see a mass exodus of businesses from the United States. We would see stifled innovation and growth and the benefactors will be countries in direct competition with the US.
Once again, you will see the normal US citizen bear the burden of the fallout.
Don’t dismiss a purposed policy because it won’t pass…because when it eventually does it will be too late.