Guest Post by Simon Black
I arrived home late last night back to Puerto Rico after a wonderful, 2-day event with our Total Access members this weekend.
Luminaries like Ron Paul and Robert Kiyosaki joined me on stage, and as you can imagine, we spent a lot of time talking about the trends in western civilization– inflation, social conflict, supply chain disruptions, etc.
We also spent a fair bit of time talking about taxes, given that lawmakers in the Land of the Free are presently bickering about whose taxes to raise, and by how much.
Some of these tax proposals are downright mystifying.
For example, one proposal forbids Individual Retirement Accounts from making ‘non-traditional’ investments like startups, private placements, and even certain crypto investments.
This is completely bizarre when you think about it– the politicians who came up with this idea (i.e. Comrade Bernie Sanders) love to dump all over Wall Street.
Yet by taking away the ability for IRAs to buy private assets, Bernie would force millions of Americans to invest all of their retirement funds with the very same Wall Street banks that he claims to hate.
So basically we have a Socialist who is engineering more business and more fee income for Wall Street’s biggest banks. Weird.
On top of this, there are proposals in the legislation that could be considered clinically insane, if you take the definition of insanity to be trying the same thing over and over again while expecting a different result.
The proposal to jack up capital gains tax is an obvious example.
The United States government has an almost unblemished historical track record here: nearly EVERY time they’ve raised capital gains tax rates, capital gains tax revenue has actually FALLEN.
In the late 1960s, for example, the federal government significantly raised capital gains tax rates. Yet capital gains tax revenue fell significantly.
In 1967 before the law passed, total capital gains tax revenue was $4.1 billion. By 1970, even though tax rates were higher, tax revenue had fallen by nearly 25% to just $3.1 billion.
The same thing happened in the late 1980s; capital gains tax rates were increased from 20% to 28%.
Yet actual capital gains tax revenue fell from $52 billion (in 1986) down to just $35 billion (by 1989), and reached as low as $24 billion by 1991.
The real irony here is that the top capital gains tax (not including the Obamacare surtax) is currently 20%. And they are proposing to raise this rate to 28%.
It’s literally a repeat of 1987 all over again– raising capital gains rates from 20% to 28%. The historical outcome is clear: capital gains tax revenue fell by more than HALF.
And yet these people still think this is a good policy idea!
They fail to understand a very simple lesson: when you change capital gains tax rates, investors merely change their behavior. Duh. And there are always plenty of ways to beat increases in the capital gains tax.
One obvious effect is that tens of thousands of tax refugees will come here to Puerto Rico, where the local government has incredibly generous tax incentives for business owners and investors.
US citizens who live in Puerto Rico are subject to 0% tax on qualifying capital gains; they pay no Puerto Rican tax, and they are not subject to US federal income tax either.
Another effect is that many investors will simply choose to NOT sell, especially if they’re holding ‘bankable’ assets like real estate, cryptocurrency, and stocks, i.e. assets that banks will accept as collateral for loans.
Interactive Brokers, for example, will currently make margin loans to its investors (secured by the investor’s stocks and bonds) at rates as low as 0.75%.
When you can borrow against your assets for just 0.75%, why bother selling at all, especially when the alternative is paying 28% to Hunter Biden’s dad?
Plenty of people do this already; Elon Musk famously borrows heavily against his Tesla stock.
He doesn’t actually sell his stock, so there’s no capital gains tax. And because loans are not considered income, he doesn’t owe income tax either.
In effect, Elon can monetize the gains in his Tesla stock without having to pay a penny in tax.
The real irony of this strategy is that, if they really pass a significant capital gains tax increase (even though it’s a historically bad idea), it might drive asset prices even higher.
I explained this to our audience this weekend: if people stop selling their assets because of a tax hike, then there will be fewer stocks, less real estate, less crypto, etc. available for sale.
And with a lower ‘supply’ of investments in the marketplace, the people who want to buy those assets will have to pay a higher price.
So in effect, the tax increase could engineer LOWER tax revenue, but MORE gains for investors. Totally insane.
I also told our audience this weekend that politicians would eventually figure this out… and as a result, they’ll pass a wealth tax some day.
The idea would be to tax people based on the unrealized gains of their assets, i.e. stock, real estate, crypto, etc. that you haven’t sold.
It turned out that “some day” was yesterday.
By the time I landed last night in Puerto Rico, Nancy Pelosi had already announced that they would add a “billionaire’s” wealth tax into their new legislation.
This is how it begins– they propose taxes to milk a certain portion of the population. And then slowly, over time, it grows to affect millions upon millions of unintended victims.
The Alternative Minimum Tax is a great example; it was originally passed to tax just a handful of people in 1969. Today it hits tens of millions of taxpayers.
It would be foolish to assume a wealth tax will be any different.
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If we could add people who have jobs for 250k a year and in 34 years have a bank account of 130 million bucks that would be great……
No, taxing the poor politicians like that will never fly…
Income tax is the most immoral of all taxes.
It suggests that your income does not belong to you in the first place and that whatever/whoever is taxing you, by the grace of god, just happens to let you keep the majority of it.
Sales tax and usage tax and VAT is the fairest way to go and the hardest to get around, the more you spend the more you are taxed. Tax property that isn’t a primary residence the rate of inflation which would force the feds to be honest about inflation.
Or do what Simon Black does and be a big fish in a muddy pond and drop names.
Puerto Rico? With supply lines breaking down? Buena Suerte pinche gringo!
Taxes are no longer need, All Govt. spending is done with “printed”, or key stroked “currency”. The taxes taken from sheep doesn’t even cover the interest…..
They’re proposing a tax on unrealized capital gains. They’re pitching it as a corrective to the “step up in basis” where a stock purchased for $10 that’s risen to $100 gets transferred to the heirs with a new taxable “basis” of $100 – and no one ever paying capital gains on the $90 gain. And they’re saying that tax on unrealized capital gains would only apply to people with a net worth of $1Billion or more.
Eliminating the step up in basis could be done within the estate tax. There’s no reason to have to create a wealth tax (which would require a currently non-existent wealth test). They don’t need to create a tax on unrealized gains just to fix the step up in basis.
What they want to do is create a tax that hits regular people who bought their house for $200,000 and now it’s worth $600,000 – even though you haven’t sold it. It’s all about equity. They want yours.
So you would have to sell your house to pay your tax and then rent it back from Blackrock, pretty sneeky sis !
I think you just deed it over to a fat black lesbian Antifa and live in a tent next to a freeway entrance ramp.
You will own nothing and like it…
The wealthy, anyone with a job, or anyone that owns anything.
Meh, same shyte different day
Obviously its all immoral. All theft is. Obviously it is unconstitutional. The 16th Amendment (which was never properly ratified – Read “The Law that Never Was” for the details) specifically allows the taxation of income, not unrealized profits. But in all the teeth gnashing over this “atrocity” nobody ever bothers to point out that property taxation, especially on homes, is exactly the same kind of immoral theft based on appreciating values that are not actually realized. Republicans who want to slam this proposed atrocity, might want to grab hold of some principles and rail over property taxes and school taxes that do exactly the same thing…..oh, but they love the socialist school system (most of them anyway, especially when they are in control of it).
My tax exclusion current plan. Stay poor and eliminate excess taxes. My life’s theory: When you are born warm, dry and well fed is all you need. After retirement that same plan comes into effect again. 3 Years the first part of the plan and the 2nd part 20 years. Plan working well with no need to change currently.
The rich cry about taxes and the poor cry about low wages. Hmm, lots of crybabies.
Wealth tax 🤪 how about a fair tax OMG NOT THAT ! This is America where if you derive income from capital gains you did pay a 15% tax but if you got your hands dirty earning income you pay 28% per dollar earned !
So no that billionaires and millionaires club may pay more dollars out but not a fair share .
I recall good old Mitt Romney who derived $12 million in capital gains and paid 15 cents per dollar of income while I paid 28 cents per dollar earned !
Regardless of how much he paid I paid a bigger tax bite . So no the CLUB do not pay their fair share !
In America all are created and should be treated equal obviously in the eyes of government such is not the case !