Unrealized Capital Gains: The Hidden Impact of Inflation and Government Overreach

VP Harris’s proposal to tax unrealized capital gains brings up an important subject. Most people realize how incredibly destructive it would be to tax unrealized capital gains, as it would take a wrecking ball to personal finances and capital markets. However, it also raises a deeper issue that many people don’t fully understand—the true nature of capital gains.

According to the IRS, any increase in nominal value is considered a capital gain. The problem with this definition is that many capital gains, perhaps most, are simply a result of inflation. Genuine capital gains occur when the value of an asset appreciates due to the growth of a business or other productive activities. However, much of the capital gains we see today stem from monetary inflation, which is fueled by government overspending, borrowing, and excessive money printing.

When governments print more money, they dilute the value of the dollar, robbing those who hold savings in dollars and pushing up prices of assets. This inflation-driven increase in asset prices creates the illusion of wealth, but in reality, it is just a reflection of a weaker currency. To make matters worse, the government then claims that individuals have "profited" from these nominal capital gains and taxes them as though they have actually increased in wealth.

Thus, government-induced inflation creates nominal capital gains, and the government uses these gains as an excuse to levy taxes. It’s a vicious cycle—one where the government’s initial act of devaluing the currency becomes a justification for further financial extraction from the public. It’s akin to an abuser using the bruises from the last beating as an excuse to do it all over again.