
Kamala Harris’s notion of an unrealized gains tax is terrifying.
The reason it’s terrifying isn’t only that unrealized gains are purely hypothetical. The proposal (and defenses of it) show that for many taxation has become purely a money-finding scheme requiring the scantiest of rationale. By their nature, unrealized capital gains do not actually exist; they are hypothetical.
While striving to come up with some sort of argument that they’d be nothing radical, I’ve seen supporters make two arguments: First, that people pay taxes on the increased value of their homes through the property tax, and second, that people with large assets are able to use them as collateral for loans, which means they are real.
On the first count, the property tax isn’t a tax on gains. It’s an ad valorem tax — that is, on the whole value — assessed and paid repeatedly every year. Moreover, in most cases, it’s actually a tax on the percentage the individual or entity owns of all the taxable property within that particular government’s scope. Typically, the government figures out how much tax it wants to collect, and the value of a piece of property is the proportion the taxpayer will pay. Some years it will go up, relative to other taxpayers, and some years it will go down.
The same thing partially applies to the other count. Lenders are considering the entirety of assets as collateral, not just new gains. More importantly, what they’re doing is assessing that the entire asset is sufficiently secure that it could be sold to cover an unpaid debt, and the lender accepts the risk. That the lender trusts that the value will be real at some hypothetical future date following a default does not mean that it is real right now.
Our property taxes went up 25% year over year, no renovations. I wasn’t aware that we were using 25% more police, fire and other municipal services. So we appealed the assessment, appeal denied. Appealed to the board, appeal denied. So we had a choice. Not pay the taxes and see the property go to tax sale, as so many in PVD do, or, pay the new higher taxes.
The assessment had gone up for every comparable property on the street. If the town budget goes up 5%, then you would expect everyone’s assessment would go up 5%. In our neighborhood, everyone’s assessment went up at least 5%, and 25% in our category (duplexes). So the unanswered question is, In which neighborhood(s) did the assessment drop?
From city hall — crickets.
Speaking of assessments, it’s mordantly amusing to read a real estate article in the local where the journo confuses assessment with appraisal. Get it right, please.
I like your comment about “On the first count, the property tax isn’t a tax on gains. It’s an ad valorem tax — that is, on the whole value — assessed and paid repeatedly every year.” This struck a chord with me as we are paying taxes on the whole value of our homes each year – that just doesn’t seem logical, especially in states or counties that do not have tax caps – then they do not have any way to know what the max their taxes could be, and then the government can just keep raising their taxes… Thanks for the article!
One policy I’d LOVEEEE to see the government implement, that I think would be win-win, would be for the government to offer homeowners the abilty to refinance with government backed funding at ballpark 4.0% as long as they have an equity threshold of say 40% – this would encourage good financial stewardship of the homeowner to pay down their loan, and then the government would be in a great equity position if the homeowner defaulted because the homeowner could just sell their home and have the equity to pay off the loan. Then, with these low interest rate loans, the homeowners would have less money going to interest, of which they would put back into the economy in consumer spending. I live in Dyer Indiana and would love to see that as an option around here!