Rep. Andy Smith pushes bill to tax money that doesn’t exist

An organization called Americans For Tax Fairness released an incredibly bad report recently which claimed that, as they explained on Twitter:

Was this written by someone who simply doesn’t know that an an “unrealized” — the clue is in the name — capital gain isn’t actually income? Or does the author know that this is not true, but simply does not care?

Capital gains 101

If you buy 100 shares in Acme Corporation for $10 each (total worth $1,000) and their price rises to $20 each (total worth $2,000), you have made a capital gain of $1,000.

But it is unrealized because that $1,000 gain doesn’t actually exist. It isn’t sitting in your bank account. It is the notional amount of what you would get if you sold the shares at that new price. (If, by contrast, the shares fell to $5 each (total worth $500), you would have made an unrealized capital loss of $500.)

The money is an unrealized gain because it doesn’t yet exist. As soon as you sell the shares — assuming the price has gone up and you’ve made a profit — you have realized the gain, it becomes income, and you pay tax on it. This is simple stuff.

Nevertheless, a number of fiscally illiterate outfits ran with this garbage. Common Dreams carried an article based on the report titled “$8.5 Trillion in Untaxed Assets: Data Shows Why ‘We Need a Billionaire Income Tax.’” No, it doesn’t, because, to repeat, unrealized gains are not actually income.

Predictably, perhaps, the SEIU picked up on this garbage:

And, perhaps as predictably, so did Rep. Andy Smith (DFL):

How is this going to work? Who knows?