Taxing An Intelligent Person’s Patience
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Here’s a letter to the Wall Street Journal:
Editor:
Frank Clemente asserts that “[t]he richest Americans don’t pay their fair share of income taxes for the simple reason that a lot of their income is never taxed” (Letters, March 14). Yet the “income” that Mr. Clemente identifies as escaping taxation is – his words – “unrealized capital gains.” Upon reading this line I split my side laughing. Unrealized capital gains aren’t income; they’re increases in asset values which, Mr. Clemente leaves unmentioned, might disappear tomorrow. Also unmentioned by Mr. Clemente is the fact that when assets are sold, any gains in their values are then taxed.
Using legerdemain to try to fool your readers into thinking that unrealized capital gains are the equivalent of income, Mr. Clemente notes that asset owners can borrow against asset values and, by implication, use the funds for consumption. True dat. But every cent borrowed registers as a liability on a debtor’s balance sheet; debts must be repaid. Unlike with receipts of income, a debtor’s net worth doesn’t change as a result of borrowing funds to be spent on consumption; the debtor simply transfers to the present spending power that would otherwise be realized in the future – spending power that, should the asset retain its value, will then be taxed.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
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Source: https://cafehayek.com/2023/03/taxing-an-intelligent-persons-patience.html
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