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- Talk of a tax on unrealized capital gains has resurfaced
- The idea is to tax a portion of the population on their figurative gains
- Billionaires may be the first target, but a successful deployment could see the net widen
Talk of a tax on unrealized capital gains has surfaced again as politicians seek ways to squeeze as much out of the American people as they can to fund Joe Biden’s tenure-defining $6 trillion spending plans. Few details are known about this hair-brained and grossly unfair scheme, but what do we know about the unrealized capital gains tax plan and how will it affect the humble cryptocurrency investor?
Unrealized Capital Gains Tax Is Frankly Bananas
The short answer to the question of how the unrealized capital gains rule would affect you is that it probably won’t, because it only applies to billionaires…for now. Let’s say for a moment however that you are a billionaire (congratulations, how does it feel?). How would it impact you? The idea is to apply the traditional capital gains tax rule to paper gains made by billionaires throughout the tax year in addition to actual gains. This means if you’ve been diligently holding your shitcoins to the moon but haven’t taken a penny profit, you will still be taxed on the dollar value of those gains. Sounds insane, right? That’s because it is.
Or, at least, it is if you’re a billionaire. The idea of being taxed on money you haven’t made yet is frankly bananas – imagine paying income tax a year ahead of time based on what your contracted salary was? Actually, this happens to self-employed people in the UK already, but that’s another can of distinctly unsavory worms.
Billionaires, Then Millionaires, Then…
Non-billionaires may shrug and say that Jeff Bezos, Bill Gates, and Warren Buffett can afford to pay unrealized capital gains tax so what’s the problem? The problem is not just one of principle – it may start with the 1%, but it won’t take long before the threshold is brought down from billionaires to millionaires and then…well…thousandaires. The inflow of tax dollars suddenly coming into the treasury could be too tempting for the Inland Revenue Service to resist dropping the threshold a bit each year, catching more in the net.
We have already seen how lawmakers were perfectly happy to decimate the blockchain space with the crypto element of the Infrastructure Bill in the name of extra tax, so while the idea of unrealized capital gains for billionaires may seem like a sensible and fair one now, remember that if it is successful it won’t be long before the government has their eyes on the smaller fish in the pond.