The Biden administration’s idea to tax billionaires’ unrealized capital gains may sound good to the tax-the-rich crowd. In practice, it would be an unworkable and arguably unconstitutional mess that could harm everyone.
In theory, the idea is seductively simple and appealing. Billionaires and the super-rich possess massive amounts of wealth in the form of stocks, businesses and frivolous baubles such as famous paintings or yachts. These assets appreciate in value, but their owners pay no tax on that value unless they sell it — or “realize the gain,” as tax lawyers put it. Only by selling the asset would a person be able to convert the asset into taxable income. This means billionaires with appreciating assets can become hundreds of billions of dollars wealthier each year, but the government gets nothing.
