Democrats keep floating the idea of taxing unrealized gains, but let’s be real—it’s a non-starter. Why? Because they’re unrealized. Sure, they’ll tell you it’s aimed at the ultra-wealthy, those sitting on $100 million or more, and they’ll calculate it by subtracting liabilities from assets—essentially boiling it down to net worth. But let’s pause for a second. The tax code is already too lenient on the wealthy, no doubt about that, but taxing net worth? That’s just asking for trouble. Net worth isn’t a static number; it bounces around with every tick of the financial markets. Is the government ready to issue refunds if someone’s net worth drops the following year? I doubt it.
Take a look at the ultra-wealthy. Their net worth can swing by millions, sometimes even billions, in just a few months or over the course of a year. How’s the government going to keep up with that? And let’s not forget about the non-traded assets—private partnerships, collectibles, art, real estate investment trusts (REITs), and the like. These are tough to value because subjectivity plays a huge role. One person’s valuation of a Basquiat painting might be $10 million, but the owner could easily say, “Nope, it’s worth less.” Does the government have the infrastructure, let alone the expertise, to assess the value of these complex financial products accurately? I’m not so sure.
Politicians love throwing out these pie-in-the-sky economic ideas because they sound good to voters. But come on, they know they can’t make them happen. Taxing unrealized profits is just another feel-good policy, kind of like when folks on the right talk about eliminating the estate tax—the so-called “death tax.” It sounds great, but let’s be clear: as of 2024, the federal estate tax exemption is $12.92 million per individual. So unless your estate is worth more than that, you’re not paying a dime in federal estate tax. We’re talking about 0.1% of all U.S. estates, or roughly 1 in 1,000, that are actually subject to this tax. Yet, millions of conservative voters are all in on the idea of getting rid of it. It’s like politicians are playing a big game of smoke and mirrors.
If politicians were serious about making the wealthy pay their fair share, they wouldn’t be chasing after these wacky ideas that are never going to go anywhere. Instead, they could simplify the tax code by eliminating loopholes that allow the super-rich to dodge taxes. Let’s get rid of dynasty trusts and grantor retained annuity trusts (GRATs). These tools let individuals pass on appreciating assets to their heirs with little to no estate or gift tax. Sure, tax avoidance might be unethical, but it’s not illegal. So why not tackle that head-on?
And what about wealth lending, or securities-based lending? Banks let the ultra-wealthy use their financial portfolios as collateral to get super-cheap loans. Here’s how it works: Say Elon Musk wants to buy a new $40 million mansion. Instead of selling Tesla stock, which would trigger capital gains taxes—typically 15% or 20% at the federal level—he just goes to Morgan Stanley and gets a loan using his stock portfolio as collateral. It’s financial jiu-jitsu, and the government, through the Federal Reserve—the bank of banks—could put a stop to it. Musk should have to sell some of his Tesla shares if he wants liquid cash. That way, the ultra-wealthy wouldn’t be able to go decades without selling their assets, dodging the tax system in the process.
And here’s the kicker: the interest they pay on those loans? Yep, it’s tax-deductible. But do you hear politicians talking about stopping this? Nope. Why? Because it’s easy to implement and it would hit them too. Let’s not kid ourselves—both parties are dominated by the wealthy. The average net worth of U.S. Senators and House members ranges from $1 million to $3 million for Senators and $500,000 to $1 million for House members. But the wealthiest among them? They can be worth well over $100 million. They’d rather keep us distracted with unworkable economic ideas that sound good but are never going to happen.
In the end, it’s all a game. Politicians from both sides of the aisle throw out these wild proposals that they know can’t be implemented, all while ignoring the more straightforward, but politically inconvenient, solutions. They’d rather waste our time with debates that go nowhere instead of tackling the real issues that could make a difference. Taxing unrealized gains? It’s a pipe dream. If they really wanted to fix the system, they’d start by closing the loopholes and taking on the real issues that let the ultra-wealthy game the system year after year.
