Unrealized Capital Gains Tax Punishes Success and Innovation

Biden-Harris's Unrealized Gains Tax Proposal they're goingon to tax the money you don't even have today I'm going to talk about the proposed uh tax plan of the Biden Harris Administration I'm going to analyze it from an economic perspective and and demonstrate that this will kill investment distort economic incentives punish growth and success and this is probably one of the worst ways to tax the economy at the moment you pay uh tax Realized Gains Tax vs. Unrealized Capital Gains Tax on realized capital gains as an example if you take $1,000 and invest it in some sort of fund uh in the S&P 500 uh and and next year it goes up by 10% so now you have $1,100 uh in capital gains but that gain is still not realized because you haven't sold it and you haven't actually uh acquired any any cash from your investment so so that's unrealized capital gains once you sell it you will have $100 in realized capital gains and the federal government gets a cut from maybe 15% so get they get $15 and you are left with $85 from this investment so that's the capital gains tax but now they're coming up with this idea of taxing unrealized capital gains uh and this is when they they tax the money you haven't actually earned so you put some money in an asset and it appreciates and you automatically owe taxes even before having uh realized any of those gains Unrealized Capital Gains Tax Consequences and this can have devastating consequences uh on many many different aspects of the economy and personal finance first of all your unrealized gains change all the time every minute price of assets change and and the amount you go owe to the government changes so it makes computations very difficult and uh policing it will also need uh a larger infrastructure and even more cost burden on the public another factor is it makes personal finance very very complicated because after you invest in something and it grows well all your all your money is in that investment and you still haven't earned any any of the cap gains yet but the government wants you to pay taxes on it meaning you have to find additional cash from somewhere else so that means you'd have to pull money from some other investment or some other source or or just sell your original investment to pay the taxes and uh that makes life really difficult for IND indviduals but the story doesn't end there the fact that you have to pull money from another productive investment um means that that other investment is hurt some asset is getting sold and imagine millions of people having to sell at the same time uh their investment in other assets so you get widespread crash in a variety of assets credit explodes borrowers who have put up some other investment that's collateral we'll suddenly see that their Investments are worth a lot less and they get margin calls from the banks and now they have to scramble to get cash and sell those Investments and this triggers a death spiral because uh forc sellers that have to sell to to respond to the Margin Call will also cause the asset prices to further go down and create more problems for other borrowers and then and liquidate them as well so you see massive liquidations uh all over the economy and this uh causes havoc in the financial markets but the story still doesn't end there apart from financial crisis that this will create it also destroys the fabric of the economy so it distorts economic incentives and wastes economic energy this makes successful Capital allocation a losing game because if you're successful in investing which means you've done a lot of analysis and thinking and you've been better than others in identifying opportunities and you've allocated Capital to those great opportunities once you see them grow and succeed now you get punished for Success even before you realize any earnings from that investment the consequence of that is this will push economic actors to avoid allocating Capital to high growth companies and this particularly hurts extremely Innovative companies in an economy because they're the ones that experience the highest rates of growth compared to their earnings a lot of the times they don't even have any earnings or dividends it's basically you're investing in a growth company that has a wonderful idea but it needs many many years of investment for anything to appear and the result if you're successful and if you identify the right company the stock price explodes and um all the investors in that new technology benefit a great example that is NVIDIA they are investing in one of the most important technologies that the that the country needs which is AI and the result of their success is massive stock price appreciation now taxing on realized cap gains means an Nvidia investors going to be punished much more than a Walmart or a Chevron investor so this plan essentially kills the incentive for identifying explosive growth companies and investing in them and and giving them the capital they need for Innovation and ultimately once these investors pull out and they get punished for successful investment they move Capital elsewhere and that means uh a lot of the entrepreneurship stops and that means uh a lot of hiring will stop and that means the average Americans who you're trying to save with tax plans like this they will they won't have they won't have the jobs they used to so in an effort to create more equity you're equally Distributing poverty among people so this kind of tax plans are essentially uh punishments for optimism and Innovation hope you like this I'll see you in the next video