Unrealized Income?

     I won’t speak for anyone else, but when I call a development “unrealized,” I know what I mean by it: it hasn’t happened yet. And of course, something that hasn’t happened might never happen. So what shall we say, Gentle Readers, about this resurrected notion of unrealized income?

     Many billionaires can pay far lower tax rates than average Americans because the federal government does not tax the increase in the value of their stock holdings until those assets are sold. Billionaires are able to borrow against their accumulated gains without triggering taxes on capital gains, enabling huge accumulations of wealth to go virtually untaxed by the federal government.

     Plainly, the Washington Post’s Jeff Stein approves of taxing that “unrealized income.” He treats it as a real thing: spendable money already in the hands of its “owner.” So why not clip off a nice chunk for the federal government, eh?

     (Remember when, during the Clinton Administration, it was proposed to tax homeowners on the “unpaid rent” they saved by owning a house? Wasn’t that clever? I wonder why Congress didn’t pass it.)

     Mind you, nowhere in this tax proposal does it say that the federal government would refund that tax bite should the value of those stock holdings subsequently decrease. Governments simply don’t do that. Frankly, it’s a miracle that the IRS still issues tax refunds to those who over-withhold. You’d think that by now they’d have changed the tax code to include a “Sorry! Your mistake!” provision that allows Washington to keep the money.

     These are the fruits of allowing a government to decide what portion of what you have is yours to keep.


     Back when the Republic was in its birth pangs, it was understood by the Founders and those closest to them that while the nascent government did need revenue, it must not be able to take whatever it wishes. After all, the Revolution was triggered by the British Parliament’s imposition of taxes on the colonies. And so the Founders made it difficult to impose direct taxes:

     The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States; [Article I, Section 8, first clause; emphasis added]

     The requirement that those things be uniform means that they must apply strictly and equally to all those persons, institutions, or activities they affect. The state governments could object Constitutionally to a tax bill that affected them non-uniformly: i.e., without regard to their populations. That made indirect taxes – taxes solely on transactions the citizen could avoid – the preferred method for raising federal revenue.

     The Sixteenth (Income Tax) Amendment removed the impediment to direct taxation:

     The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration.

     That allows Congress to impose non-uniform taxes – and the income tax is decidedly non-uniform. No two persons in these United States face the same tax burden. Thus we entered the magical realm of ability to pay.

     In no other sphere of human conduct is “ability to pay” a consideration for determining the price of a good or service. Only the “goods and services” provided to us by governments are priced that way. Nor is there any objective definition of “ability to pay.” The IRS decides such things, not the taxpayer.

     Imagine if your corner grocer or pharmacist were to price your food or medicines according to your “ability to pay.” Imagine further if that gentleman were to demand that you expose the entirety of your financial affairs to him, so that he could determine what you “owe” him for you carrots or blood pressure drugs. Would you be happy with that, Gentle Reader?

     I shall twist the knife gently by asking: Does any government with the power to tax you provide you with anything that’s worth as much to you as those carrots or those drugs? Think about it


     The proposers of the “unrealized income” gambit are saying, de facto: “Of course you have the ability to pay! Just sell your stock!”

     The claim that Smith could sell his million shares of Galactic Hotcake, currently “priced” by the New York Stock Exchange at $100 per share, at will for $100 million is perhaps the most ludicrous of all Congressional fictions. Smith must find a buyer or buyers. What if there aren’t any? What if the sale of the first ten thousand shares causes the price of the stock to decline? That’s typical stock-market behavior: “Smith is dumping his shares! Sell before the run starts!” That’s usually the start of a stock collapse…sometimes a general market collapse.

     Besides, that’s not the endpoint; it’s only the beginning! Let’s imagine that Smith does succeed in selling 200,000 shares at $100, thus raising the $20 million he needs to pay the IRS. That leaves him with 800,000 shares, which will be taxed the following season. That would force him to sell another 160,000 shares to raise the payment, leaving him with 480,000 shares to be taxed the season after that. And so forth, until Smith has been mulcted of most, if not all, of his holdings.

     If you plan to tell me that pResident Biden is a “capitalist,” you’d better keep your hands where I can see them.


     Finally for this tirade, we have a hearkening back to 1913, during debate over the Sixteenth Amendment in the United States Senate:

     When the Sixteenth Amendment was being debated on the floor of the Senate, one of its opponents rose to ask the body what it could say to reassure the American public that this tax would not rise to seize some unconscionable fraction of their earnings — perhaps as much as ten percent! A pro-income-tax senator rose and replied that the country need never fear such a development: “The people would never allow it!”

     Another fine example arises from Social Security, which Franklin D. Roosevelt pitched as a “supplement” to the resources of American retirees. At its inception, Social Security promised to take no more than $7.50 per month from a worker’s paycheck. Today the limit is over $550.00 per month, and for many wage earners is the largest single tax they pay. To add insult to injury, the Supreme Court has ruled that no matter how large his payments to the Social Security system, no man has a right to any payments from it.

     Look at any of the political bonds that have been fastened upon us: labor law, environmental law, firearms control laws, laws that infringe upon property rights, what have you. In nearly every case you’ll find that the original collar was gently applied and loosely fastened. It simply didn’t stay that way.

     The term most commonly applied to such a slow, steady tightening of the screws is gradualism. Gradualism uses the power of habituation — the ordinary human tendency to accommodate and adjust to conditions we can’t individually alter — to solidify its gains and prevent retrograde motion. In her landmark book The God Of The Machine, Isabel Paterson referred to it as political power’s “ratchet action.”

     We have habituated ourselves to all manner of fetters. They were applied with such delicacy, and tightened so slowly and smoothly, that many of us cannot imagine life without them. Yet at any instant in the process, it was still possible to rear up against it. Despite appearances, it remains possible today. We simply haven’t done so, nor is it likely that we will.

     Hollow laughs are allowed, Gentle Reader. Indeed, considering what has been fastened upon us since those days of yore, they’re required for one’s mental health. And given that the $100 million “lower bound” of this “unrealized income” tax is legislative and arbitrary, what should we assume about its persistence? Isn’t it highly likely to be moved – downward — as Congress discovers new “needs?”

     That’s the way I’d bet. Moreover, the current proposal does not exempt equity holdings in 401(k) and IRA accounts. You can work out the rest for yourself.


     It has been said, mainly if not exclusively on bumper stickers, that “The Founding Fathers would be shooting by now.” Indeed! They’d be stacking bodies like cordwood. That we’ve done absolutely nothing beyond a couple of impotent protests suggests rather strongly that our will to resist governmental depredations has dropped all the way to zero. We are placidly grazing sheep, awaiting our moment to be shorn.

     Let him save himself who can.


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    • Toastrider on March 28, 2022 at 10:39 AM

    A couple things to ponder.


    One: I am unsurprised that the parasite caste (aka the Beltway Bandits, etc) is eyeing unrealized gains/income. However, the interesting part is that many pension plans rely on stock options to fund them, especially PUBLIC pension plans. So they may be talking up a good game without actually planning to follow through (yes, I’m well aware they are stupid enough to gut the goose laying the golden eggs; I’d be surprised if someone didn’t yank them up short before they did so, though).


    Two: Whenever someone says, ‘it’ll never happen’, my mind flashes back to a scene from the Chernobyl miniseries:


    Charkhov: Why worry about something that isn’t going to happen?
    Legasov: (laughs) “Why worry about something that isn’t going to happen”? Oh, that’s perfect. They should put that on our money.


    Tend to your own garden first, I agree. But never rule out the unexpected. Sometimes God, fate, karma, likes to throw a curve ball.

    • SiG on March 28, 2022 at 3:52 PM

    If they were looking for a way to collapse the stock market, I’m not sure there are any easier options.  As soon as that law looks like passes, everyone looking to buy stock knows that those shares have to be sold in the near future, so just wait for the fire sale.  Prices are going to have to fall if the holders need to sell to pay a bill and the buyers refuse to offer anything for it.   I’m thinking major drop, like 30 to 50% devaluation.  To the people who say the market is overvalued now, maybe that’s right, but it would collapse the economy.

    What if those “millionaires and billionaires” that Lizzie Warren (and others) calls freeloaders can’t pay?  I guess they go bankrupt.  It’s hard for me to see the world through the envious, contemptuous eyes that those people do, but do they consider it better for that “wealth” to just evaporate and nobody has it?  If their goal is really to have the wealth and control it, what do they when it just disappears and nobody has that wealth?  It’s equality after all.  Everyone is made more poor and miserable.


    1. At a guess, it’s more likely to be a leveling-and-control measure than an “enrich the Establishment” measure. Look how much trouble a single billionaire, Elon Musk, is causing them. Remember what Screwtape said:

      What I want to fix your attention on is the vast, overall movement towards the discrediting, and finally the elimination, of every kind of human excellence — moral, cultural, social, or intellectual. And is it not pretty to notice how “democracy” (in the incantatory sense) is now doing for us the work that was once done by the most ancient Dictatorships, and by the same methods? You remember how one of the Greek Dictators (they called them “tyrants” then) sent an envoy to another Dictator to ask his advice about the principles of government. The second Dictator led the envoy into a field of grain, and there he snicked off with his cane the top of every stalk that rose an inch or so above the general level. The moral was plain. Allow no preeminence among your subjects. Let no man live who is wiser or better or more famous or even handsomer than the mass. Cut them all down to a level: all slaves, all ciphers, all nobodies. All equals. Thus Tyrants could practise, in a sense, “democracy.” But now “democracy” can do the same work without any tyranny other than her own. No one need now go through the field with a cane. The little stalks will now of themselves bite the tops off the big ones. The big ones are beginning to bite off their own in their desire to Be Like Stalks.

      C. S. Lewis might have been the most important voice of his time. We should have paid more attention to him. We should be doing so now.

    • da elmo on March 28, 2022 at 6:44 PM

    I’ve been negative a while, on the size of the fight, in the Citizens. A year now maybe … soft and flabby the populace be, I’ve written a few times. Now? I’ve changed my mind. I believe we will know, we will find out this year. If the Nation lives or dies. Whatever History records as the scenes of battle, where Lady Liberty lived or died (She is lustily alive in small town Arizona).

    We will see … we will then know the size of the fight. Many are just now understanding, that there are snakes in the Garden. Vicious vipers, that need be turned out. At a Human cost. I’m not a betting man. But I myself, will  not surrender before I take my last breath, upon this mortal coil. I am not alone.  I believe there are many like me. The possibility of a better future commands me. I fear not losing, only not trying.

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