Under cover of capital gains, the hyper-rich have been getting richer than we thought: the earnings of the top 0.1% grew 50% more from 1996 to 2018 than previously measured
It's worse than that. If you have a stable, growing investment, capital gains tax can be delayed indefinitely by not selling, and disappears on death, so the next generation gets the gains tax free. (In the U.S.)
I don't see why this is considered a problem. If you haven't sold it, you don't yet have the gains, hence no tax, right? There is risk in not selling – it could go down before you do and you could lose some or all of your investment. If that does happen, should your taxes be lowered? It seems reasonable to only tax capital gains when they're realized.
To put it another way, if I buy a fancy pair of sneakers, and they're a scarce commodity, and once the manufacturer runs out, my sneakers are now worth more to people who buy sneakers, should I be taxed on the "gain" in value if I haven't sold them? If not, then why is it different for stocks?
Yeah, this one is really odd to me. I don't understand why stuff passed down isn't taxed. That does seem like a case where you suddenly have more capital than previously. I understand the argument often made that, "they inherited the family farm and couldn't pay the taxes on it and had to sell it." But all evidence suggests that has never happened, so seems like a straw man. Even putting the limit back down to something like $1million would be more reasonable than what we have now.
The main difference being that stocks and other financial products are 'made up' objects with only one purpose: playing the market and hopefully creating a profit in doing so.
A sneaker, or any tangible product for that matter, has a pragmatic purpose. If that sneaker becomes tradeable or a scarce commodity in the future, that wasn't what it was made for. It's purpose was and is its goal. The profitability is a by-product of marketing.
Now there are some areas in which this line gets really blurry (e.g. art) but one should never forget that investing in stocks, bonds, or any other financial product packaging, is -simply put- gambling. You put your money at risk in hopes of gaining a profit. Therefore, just like you get taxed on your gambling wins, you get taxed on capital gains. You can decide to not cash out your chips at the casino and hide your gambling wins from potential taxation, but then you have the risk of the casino deciding a few years down the line to refuse old chips being cashed out. You don't have this risk in most financial products. And that's a problem. You can't completely hide your fortune in stocks and bonds, but you can prevent it being taxed. And as long as you have enough money in too-big-to-fail blue chip companies, you can bet your ass that your grandson can check 'em out for you in 50 years.
A sneaker might become as useless in 50 years as a rotary phone is now. Its materials might have degraded to such an extent that you're left with a rag on a sole. A smart investment will outlive you.
The types of sneakers I'm talking about are generally not worn and are bought specifically to be a collector's item.
Not by any reasonable definition. It's an investment. I can invest in a property either to live in or to rent out. It's not at all like putting money on a number in a casino and hoping that number turns up. You can, for example, do research about a company or property to get a relative picture of its value. Regardless, as you say:
Well, it's not really "hiding" anything if you literally haven't been given the money yet. You don't yet have those gains, and furthermore, by not cashing out, they are losing value due to inflation. So yeah, it's like that. You haven't made any gains, so no taxing them. Seems reasonable to me.
With the gambling analogy, that would be like if the casino came and collected chips for taxes every time you won a game, rather than at the beginning (when you buy the chips) or at the end (when you sell them back for money). Which would be a bit much; If you broke even, then, in profits and losses, you'd have lost money since your moments of profit were taxed.
Calling it gambling is a bit much. There ends up being randomness, but that's more because the world is random and unpredictable, rather than being an inherent part of stocks.
Would you say starting a restaurant is gambling too?
Starting a restaurant is absolutely a gamble. It's about as likely to pay for itself as dropping $300k on a single number at a roulette table and hoping for a win, and it'll eat years of your life in the process.
Delaying capital gains tax means that an investment compounds tax-free. This is similar to what happens with a 401k. It's a bit different since you can't rebalance, but you could just buy Berkshire Hathaway or an index ETF and hang onto it as long as you want. There are limits on how much you can put into a 401k and it seems like there should be limits on tax-free savings in other ways.
I think it would be reasonable to have some kind of mark-to-market on investments that are publicly traded, with a conservative valuation, such as taking the lowest market price over the previous couple of years. I agree that it's trickier for investments that aren't liquid.
This isn't particularly worse than other forms of tax avoidance, but it's another way of making the tax system less progressive than it seems. It doesn't seem right that taxes are higher on worker's wages than on the investments of the 1%.
The report is specific to the UK, and points out the error in looking only at reported income to determine inequality.
Pickety's book Capital highlights how capital gains is driving inequality, and how to fix it.