Democrats seem to have nixed the idea of taxing returns on unsold stock and other assets, favoring other ways to raise revenue as part of a nearly $2 trillion social and climate bill.
Scrapping that tax on “unrealized capital gains” would primarily benefit the richest Americans, who hold the bulk of the country’s financial wealth.
The U.S. tax system is designed to tax income, like wages from a job. But stock and other asset gains don’t count as income unless sold, or “realized.”
That means asset owners can delay tax by holding onto the asset for years. They can sometimes escape tax outright if they keep an investment until death, due to tax rules for inheritances.
These workarounds lead many of the country’s wealthiest people to underpay their fair share of taxes, according to Richard Winchester, a tax policy expert and associate professor at Seton Hall Law School.
“The uber-wealthy can manipulate the timing of their tax bill, and they manipulate it in a way where it never ever comes,” Winchester said.
Almost all households (98%) in the top 10% have some sort of unrealized gains, according to most recent Federal Reserve data, from 2019. Those gains may be from assets like a home, vacation property, business, stocks and mutual funds.