Proposal to Tax Billionaires for Unrealized Appreciation

This past weekend, President Biden met with various Senators and Representatives to discuss how to pay for his Build Back Better agenda.

The President supports a proposal to tax billionaires each year for the unrealized appreciation on their investment and business assets, even if the investment was not sold. Currently, taxes are only assessed after an asset is sold. This new proposal is a radical change that would be very difficult (and expensive) to administer and upend years of established tax principles.

As a CFP and tax attorney, I am unclear as to how this proposal would work or raise the required revenue. Suppose you purchased Microsoft stock at $100 per share. At the end of the year, Microsoft stock could be worth $200 per share. According to this proposal, you would owe tax on the appreciation ($100 per share), even though you did not sell the stock and even though the stock could be worth less when it is eventually sold. Imagine how complex it will be to keep track of, or value, the annual gain on assets, closely held property, or other non-tradable investments.

According to news reports, there are currently only 700 billionaires in the US, so this tax would only apply to a very small subset of the American population. But, in the future, it will be easy for Congress to expand the group of taxpayers affected, and many more Americans could be subject to a tax on unrealized appreciation (which has previously been introduced as a bill in Congress). We will be tracking this development carefully.

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