How private equity is changing housing

Wealth taxes don't work because wealth gets extremely fuzzy.

For example, unsold stock that I bought 15 years ago; and then got a loan against. I'm wealthy... kinda? But I didn't sell the stock; I have unrealized gains, and you shouldn't tax me beyond income tax on borrowed money? Okay, tax me on my unrealized gains then - but then 2008 repeats itself, stock goes down 40%, do I get a refund? Of course not, I only pay when stock goes up and never down, which is not exactly a fair incentive.

Now imagine artwork I bought 15 years ago from Banksy. Or imagine my video game collection I bought on eBay that contains some rare titles. Or what about my wine collection? Now imagine I'm Elon Musk, on paper worth $400B, but if I sold even 20% of my stock, that paper valuation would be shredded from an excess of liquidity driving the share price down, so you can't tax me on what is physically impossible to realize.

What about a law where you couldnt use over a million dollars (to exclude normal people) a year of any asset as collateral for a loan unless you paid capital gains on it at its current valuation?

If I pledge $10M in stock for a $2M loan, what's the taxable event? The full $10M valuation, or my $2M loan? What if the stock is in a company worth $40M, but the sale of $10M in stock causes it to be worth $5M afterwards and the private company's value is reassessed to $20M, after I got the loan and after my pledge?

Why do you assume such a law would not allow counterbalancing capital losses?

If the tax is set at say 2% of wealth (excluding primary home and _displayed_ artwork/collectibles), and that's above your income, just pay with your stocks at the valuation they have at tax day.

Because then 2001 happens or 2008 happens or 2020 happens and the government suddenly owes back a decade of wealth tax. A stock market crash becomes even more disproportionately expensive for the government and requires even more borrowing.

You create a lot of other side effects that destroy a lot of valid activity and thus cause a large economic depressive effect, or you will start needing to provide a lot of other counterbalances that will be even worse or cost the government a lot more.

This has the finance equivalent of feeling like cookie banners will actually do anything.

Political power will advocate for it's power, you have to go one level higher and interact at that level, not on tax law tweaks.

To give an example of where this has gone wrong already, look at the entire interaction between startup stock, ISOs and AMT and how it creates a horrible trap for startup employees, but not for founders and investors who get a lot of very nice tax benefits like QSBS, no AMT, so on. Because startup employees are diffuse, usually have unstable employment and are usually younger, this hasn't been fixed to this day.

While other countries like Israel have this fixed in a very elegant way, where you can exercise without tax bombs and only actually have tax liability when you actually can and do practically realize or liquidate the stock gains.

This assumes everything can be paid in liquid public equity, which is often not the case in any private or offshore investment. Additionally, the government now owns stock they can't realize without by definition causing a stock market decline. Sell stock that previously wasn't on the market, you exhibit permanent downward pressure.

> private or offshore investment.

I don't have a good solution for private investment, but for offshore public investment, you can have the same principle.

> Sell stock that previously wasn't on the market, you exhibit permanent downward pressure.

Which is a very, very good thing, to be clear. Because it lowers expectations of future returns, and make stock valuations not based on "i predict pension funds will automatically put their contributor money into those stocks", but on actual business information.

> Okay, tax me on my unrealized gains then - but then 2008 repeats itself, stock goes down 40%, do I get a refund? Of course not, I only pay when stock goes up and never down, which is not exactly a fair incentive.

We already do this for property taxes.

I don't have an economics or finance background. But why could there not be a taxable event for the loan amount when it is made? Sure, maybe it gets taxed at a lower rate than even capital gains to continue incentivizing leveraged investments of this nature. Is there some economic argument for why lenders can realize the value of an asset when loaning out money against it but the tax man can't touch that asset until it's actually sold?

> paper valuation

Don't allow loans against equity ownership. If you can take a loan against it, you should be taxed on it.

> artwork, rare collection

Tax the insured value. If it can be insured for 100 bucks, it should be taxed on 100 bucks.

Why can't the government just own stakes in private and public companies? Put them into some kind of sovereign wealth fund. No need to sell at all.

At scale the government's holdings will be very diversified and relatively low risk. Almost like an index fund, but for the entire economy. They can use the dividend payments from these holdings to reduce income tax.

That's a very strange way of looking at property taxes.

I do not see the difference between property taxes on my home and property taxes on my stock portfolio. What makes wealth taxes bad?

A corporation does not provide services to shareholders.

A municipality is charging residents for services. Obligations are progressive (by necessity), and indexed to assessed property value (as a practicality), rather than equity or income.

Municipal operations get more expensive with inflation, and with resident demands (ballot initiatives, etc). They are never zero, and must be tied to something in the real world.

These payments are collected as a tax, because that is the only lever available to municipalities.

I see your point, but I think it's a category error.

You are taxed on realized property capital gains, beyond a certain amount ($500K?) for principal residence (anywhere you've lived two of more of the last five years). And for a non-principal residence there is no threshold.

Property taxes are use taxes. You're paying for the right to occupy an inherently limited resource, and for necessary services and infrastructure. It's not a wealth tax because it doesn't matter how much equity you have; it's the same whether you fully paid in cash or have an interest-only mortgage. It's also not a capital gains tax because the purchase price doesn't matter.

Me owning a bigger house than my neighbor does not mean that I use more services than them. My water bill is my municipality charging me for services. My real estate tax is a charge for the general good of my community. I see no reason why this can't simply be a tax for the national good.

The total ownership of all public companies is also a limited resource.

Whether I have 0% equity or 100% equity in my home I still own it. The only question is how much I owe to the bank. "Oh I bought that with leverage" shouldn't change things for home ownership and it should change things for a wealth tax on stock ownership.

Then it’s an asset/property tax, not a wealth tax, because debt doesn't change the asset (even if it is secured by the asset), but it does change wealth.

The municipality charges all residents for all services provided. Citizens vote on which services are provided to them, and which they will have to pay for.

The payment obligations are progressive by necessity, and indexed to assessed property value as a practicality.

The municipality does not care how much equity you have in your house, or how much wealth you have in other assets, or how much income you have.

Your property tax obligation is the same, whether you have unrealized gains or not. It is therefore obviously not a tax on unrealized gains.