From: ask@cbnews.cb.att.com (Arthur S. Kamlet)
Subject: Re: Brokers to be taxed on UNREALIZED CAPITAL GAINS--prop. legislation
Organization: AT&T Bell Laboratories,  Columbus, Ohio
Distribution: usa
Date: Wed, 14 Oct 1992 21:20:44 GMT

In article <1992Oct14.092847.22989@lmpsbbs.comm.mot.com> markr@mcil.comm.mot.com writes:
>>"... a provision in the Revenue Act of 1992 (H.R.11) now being 
>>considered in the Senate. If passed in its current form, the law would
>>force Wall Street firms to pay taxes on unrealized gains in their
>>security trading positions. ....firms would pay Uncle Sam as much as
>>$4 billion over a 5 year period. Firms with big trading operations ...
>>Commercial banks that do a lot of trading ... would be hurt... ."
>>
>>"The Securities Industry Association is up in arms over the bill, calling
>>it "discriminatory and anticompetitive". The association pointedly notes
>>that nowhere else in American industry is Congress trying to tax 
>>unrealized gains.
>>
>>Here's a scary thought. If Washington begins to tax Wall Streets' 
>>unrealized gains, will the taxmen use the precedent to do likewise to
>>other businesses--and individuals?"
>
>Even more scary.  Our 'representatives' (and I use the word lightly), have
>finally realized that it will be very difficult to raise taxes overtly, that is,
>by raising tax rates on income.  What they will do now is find every large
>chunk of money (which is currently untaxed, usually by virtue of it not being
>income) and tax it somehow.  They will tax our assets, our pension plans,
>our 401(k)'s, our IRA's, our stocks, our bonds, our inheritances, and everything
>else they can get their hands on.

Well, one thing you can say about the tax folks:

                      If you have it, they will come!

In some ways, we are alredy taxed on unrealized gains:

   -- If you own shares in a mutual fund, those shares have value.

      When you sell those shares you incur a capital gain/loss.
      If you don't sell the sahres, you might think you have
      no gain/loss.  No way.

      All net gains by the fund are reported to the IRS and to you,
      and you must declare these gains as either capital gains (if
      long term) or ordinary income (if short term.)

      And pay taxes on them.     You can't even use the fund's
      short term gains to cancel out your short term losses
      to avoid loss carryover.

      And if the fund has a net loss, you cannot get the tax benefit
      of the loss.

      So, in a real sense, you are taxed on your unrealized gains in
      your shares of the fund.


  --  Certain securities, such as index and futures options, and
      straddles created from these, require that you "impute"
      income if Year End value results in a gain to you.

      You must report your capital gains As If you had sold them
      at year end.

      Since options are a device that, among other things, allow you
      to slide gains from this year into next year, it wouldn't be
      too surprising if one day they decided to do the same for
      ordinary stock options.   And how long before they do this for
      ordinary stocks?

      Maybe the outcry and the paper/recordkeeping nightmare is
      the only thing holding them back.  It will certainly go a long
      way towards discouraging just plain folks from having anything
      to do with the stock market.
-- 
Art Kamlet  a_s_kamlet@att.com  AT&T Bell Laboratories, Columbus