Treasury Secretary Janet Yellen has announced a proposed new tax that would hit the unrealized capital gains of “exceptionally wealthy individuals,” Yellen said on CNN’s State of the Union Sunday.
Specifically, Democrats are considering a proposal that Sen. Ron Wyden (D-Ore.) and the Senate Finance Committee have been looking at that would impose a tax on unrealized capital gains on liquid assets held by extremely wealthy individuals, which includes billionaires and those who earn $100 million in income in three consecutive years.
“I wouldn’t call that a wealth tax,” Yellen said. “But it would help get at capital gains which are an extraordinarily large part of the incomes of the wealthiest individuals and right now escape taxation until they’re realized. And often they’re unrealized in death because of the stepped-up basis.”
Democrats need the tax revenues to pay for President Biden’s $2 trillion “Build Back Better” spending package.
The proposal would likely affect less than 1,000 of the nation’s wealthiest citizens, the Wall Street Journal reported.
The tax would be applied annually to unrealized gains, which means that holders of stocks, bonds or cryptocurrency could be taxed on increases before they have sold the assets. The tax could also hit appreciated real estate before the property is sold.
As yet, there are no details regarding whether the tax treatment of unrealized losses would be changed.
Some advisors are worried that taxing profits on assets before they’re sold could stifle investment and that the tax could be expanded to beyond the ultra-wealthy.
“This is lunacy. First, it’s millionaires and then finally everyone else. ... Let’s get real. Is the IRS going to allow 100% of unrealized capital losses to be written off each year since it will be taxing unrealized gains,” Scott Salaske, founder and CEO of RIA firm First Metric, asked on Twitter.
Write-offs won’t help the uber wealthy if an unrealized cap gains tax is ratified, warned Michael Kitces, head of planning strategy at Buckingham Wealth Partners and co-founder of XY Planning Network.