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Tax the Acorns for Oak Trees

Tax the Acorns for Oak Trees

Chris Campbell

Posted September 05, 2024

Chris Campbell

Brace yourself!

Washington's newest cash grab—the unrealized gains tax—is back on the table.

Yes, I know.

They claim it’s “just for the rich”—just like they did with the income tax in 1913.

And yet…

History reveals that taxes never stay in their lane. They spread, creeping from the wealthy down to the middle class, and beyond.

But even if this tax only hit the ultra-wealthy, the consequences would ripple through the entire economy.

How do we know? Nature.

Everything is Cycles

Nature gives us the clearest example of why taxing unrealized gains might be a bad idea.

Like nature, markets run on cycles of growth, decay, and renewal.

Timing is everything.

Imagine if a tree had to shed its fruit before it was ripe—simply because it might produce a good harvest.

That’s what an unrealized gains tax does: it forces the tree to lose some fruit early, before it has the chance to fully develop.

You might say this is an apples to oranges comparison.

Perhaps you’re right.

Here’s a better one:

It’s like making a bear burn through its stored fat—by building catapults for chipmunks to fight hawks, no less—all before hibernation.

But it’s worse than that.

If you invest, you’re hit with an unrealized gains tax. If you don’t invest? You’re hit with inflation tax.

Either way, you lose value on your potential.

The bear can hunt for more, only to be taxed on the catch before winter. Or sit still and let its stash rot as it waits.

Either way, our bear is screwed. And there’s no way he’s planning effectively for a bad winter.

Growth Requires Time

Growth happens when it’s ready—when the bush has drawn enough nutrients, when the season is right, when the conditions are optimal.

If you cut that cycle short, you disrupt not just the thing’s potential, but the potential of everything it touches. Which, whether we’re talking about nature or finance, is a lot.

But what if we're just talking about the animals who have plenty of potential to pass around?

You know, the “ultra” rich.

Well, some of those rich - not all - are so because they produce more than the average bear.

They’re not just sitting on piles of honey and milk—they’re creating businesses, jobs, innovations, and wealth for others.

So while you might feel justified in taxing an oversized pack of rabid wolves, you’re also taxing the bees—the ones pollinating the economy with growth and wealth.

Switching gears to investing, there’s one thing to consider…

As our own Davis Wilson points out in his article below, even in the world of bees…

Not all wealth is created equal.

And understanding that - whether we’re talking wolves or bees - is the key to becoming a better investor.

Take, for example, Elon Musk.

Read on.

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