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![]() ![]() Senator Wyden authored a 2021 bill that would impose “anti-deferral” tax accounting for billionaires. In 2019, Senator Ron Wyden (D-OR) issued a white paper exploring options for implementing a system of progressive mark-to-market taxation and/or lookback taxation of capital gains, wherein investors face an interest penalty for deferring gains. ![]() In 2020, Senator Michael Bennet (D-CO) explored accrual taxation of capital gains. Lawmakers have recently been exploring reforms aimed at limiting the tax benefit of capital gains deferral. Scholars and lawmakers have proposed reforms aimed at limiting the tax benefit of capital gains deferral, ranging from reforming stepped-up basis at death to taxing all gains on an accrual basis. Second, asset basis is “stepped up” to its market value at the time of death or charitable donation, so those who plan to leave an asset in an estate to their children can avoid capital gains tax entirely.Īll else equal, the tax benefit of deferral is economically inefficient: it encourages investors to make portfolio allocation decisions based on tax considerations unrelated to real production. First, due to the time value of money, taxpayers can reduce the net present value of tax liability by choosing to defer realizations. The lock-in effect arises for two reasons. The discretionary nature of capital gains taxation thus creates a “lock-in effect” because the longer an investor holds appreciating property before selling, the lower the real tax burden on investment returns. Investors decide when, and in some cases whether, to pay taxes on investment gains. ![]() The tax treatment of capital gains differs from that of other income types because taxation occurs upon realization rather than accrual. ![]()
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