Say a person buys 1000 currency as shares. Over a month, the value of those shares become 5x and thus the person now holds 5000 currency. Thus, the government gets to acquire a percentage of the profit the person acquired (4000,in the form of shares) from some seizure of the person's shares equal to that required tax. The government hence must sell this on the stock market (to prevent it randomly and unfairly getting power in companies). Each share is independently evaluated a month after it has been bought, selling of one resets its taxation timer.
Would this system work?
Would this method of taxing stocks work?
byu/IDC_tomakeaname inAskEconomics
Posted by IDC_tomakeaname
7 Comments
What are you trying to accomplish?
It seems like you are making the tax system more complex, which is a bad thing.
This sounds like you’re forcing people to take profit and pay capital gains tax
Does your system offer tax refunds if the investment goes down instead?
Also when liquidated for tax purposes, the value of the investment is likely to decline, so the tax charged will be incorrect- what’s the process here?
> Say a person buys 1000 currency as shares.
I don’t understand what this means. How can you buy currency “as shares”? You either buy shares or you don’t, which is not the same thing as buying currency.
Suppose I buy shares for $1000. Later on those shares become worth $5000. That’s a rise in the price of those shares. It has little to do with dollars. You suggest that the government obtains a percentage of *shares*. Why do that? Why not just tax the gain in monetary terms? That’s what current capital gains tax does.
It seems like you are suggesting a capital gains tax with extra steps.
In theory, it could work as a way to tax capital gains in real time, but in practice it would create huge market distortions. Forcing the government to acquire and sell shares constantly could crash prices, increase volatility, and encourage people to move investments offshore or into untaxed assets. Traditional capital gains taxes avoid those mechanical effects while still capturing revenue
This is even worse than just taxing the gains because it forces the sale even in cases where the person would have paid the taxes from another source. Markets would be wildly unstable.
Also I think you don’t realize how massively annoying it would be to do this every month. Trillions in selloffs every 30 days would be ridiculous. Companies would probably just go private and investors would flock to assets that arent taxed like this. Like physical gold or real estate.
If you want to raise taxes on the owners of stocks the most obvious solution is go back to not allowing share buybacks. Companies would have to either reinvest revenue in productive assets or pay out taxable dividends. There would be no loophole that allows a tax free distribution the way a buyback does.
I think something missing in these analyses is that even if it did work, which I see flaws in, would the cost be worth it? You’d need a heck of a lot of government employees to watch and enact these trades. It would also be hell on the market trying to constantly readjust to shares being sold back into the market. I suppose it could possibly price that in but that’s a lot of extra waves created for a system that already works pretty well.
I think what you’re really trying to ask is how can The US government tax unrealized capital gains in the form of stocks.
The problem with this is it directly discourages stock ownership because stocks are volatile and if the stock declines after you’ve paid the unrealized gain the government is not going to issue you a check back to account for this.
So this is essentially just a tax on the winnings from stocks and nothing from the losing of stocks. So you’ve essentially hacked off the return and preserved the risk.
That may be a good system for people who think gains in the stock market that are unrealized are inherently unfair, but it would be bad for the economy because it would discourage stock ownership and encourage far less risk taking. That’s just what would happen if this policy even worked. In reality, what it would do is discourage assets from being public or having very easy to understand pricing value so as to keep the asset away from taxes.