The Supreme Court will hear oral arguments in early December on a case that has the potential to broadly reshape the U.S. tax code and cost the government hundreds of billions of dollars in revenue.
At issue in Moore v. United States is the question of whether the federal government can tax certain types of “unrealized” gains, which are property like stocks or bonds that people own but from which they haven’t directly recouped the value, so they don’t have direct access to the money that the property is worth.
What Is a Realized Gain?
A realized gain results from selling an asset at a price higher than the original purchase price. It occurs when an asset is sold at a level that exceeds its book value cost. You bought something and sold it for more than your purchase price. The realized gain would be the difference between the selling price and purchase price.
What Is an Unrealized Gain?
An unrealized gain is when an investment has increased in value, but you have not sold the investment. You purchased an asset for a price. The perceived value of that asset is higher than your purchase price, but you have not sold the asset, so you still own it.
The left says that you should be taxed on the difference between the perceived value and the purchase price. An example would be you purchased X stock at $5 per share. At some point in time the stock is said to be worth $10, but you still own it. The left is saying you have income of $5 per share - $10 perceived value less $5 purchase price equals $5. You have not realized any actual gain, just perceived gain.
If you keep that stock and sell it sometime later at $1 because the now market value has decreased on that asset, you have a $4 realized loss.
If unrealized gain is taxed, you could be required to pay a tax on real estate, like your home, based on some fictitious value each year. Why then should you not be taxed each time you make a bet at the blackjack table based on the potential winning or pay a tax when you make a bet on some sports team based on the odds and the spread. Each time you make that bet you have an unrealized gain.
To tax unrealized gain is not to tax income but to tax a dream. That anybody would even propose such a tax is ludicrous but then the left, like Marx, believes the GDP should go to the government and the government should determine the needs of each of us and give to each according to those needs. This the left and Marx claim is fair because it would bring about equality.
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