Taxing Unrealized Gains: A Path to Economic Exodus

Taxing Unrealized Gains: A Path to Economic Exodus

Washington State Democrats are signaling a push to impose taxes on *unrealized gains* this legislative session. This policy—taxing profits that exist only on paper—may seem like an innovative revenue stream, but in reality, it's a hazardous economic gamble with far-reaching consequences. Taxing hypothetical wealth that hasn’t been converted into actual cash could discourage investment, drive out high earners, and destabilize the state’s already delicate financial ecosystem.

#### **What Are Unrealized Gains?**

An unrealized gain is the increased value of an asset that has not yet been sold. For example, if someone’s stock portfolio has grown in value, that growth remains *unrealized* until the assets are sold and the gains become tangible income. Proposing to tax these hypothetical gains assumes that wealth is stable and immediately accessible. In reality, markets are volatile, and values can shift dramatically. Taxing an increase that exists only temporarily could lead to taxing wealth that vanishes overnight.

#### **A Tax on Hypothetical Wealth**

The dangers of taxing unrealized gains are numerous. Forcing individuals to pay taxes on paper wealth could result in:

1. **Liquidity Problems** – Assets tied up in stocks, real estate, or investments aren't cash. Forcing a sale to cover tax liabilities disrupts long-term financial planning.

2. **Capital Flight** – Investors and businesses are mobile. Faced with policies that tax hypothetical gains, high-income earners and investors may choose to relocate to states with friendlier tax environments, reducing Washington’s overall tax base.

3. **Economic Volatility** – Investment markets rise and fall. Taxing gains that may evaporate tomorrow is financially precarious and risks undermining confidence in the state’s economic stability.

#### **A Chilling Effect on Innovation and Growth**

Washington thrives on innovation, particularly in the tech and entrepreneurial sectors. Start-ups and small businesses rely on investment and growth. A tax on unrealized gains may discourage venture capitalists and investors from supporting new ventures, knowing they could face taxes on paper profits before these businesses succeed. The end result? Fewer jobs, less innovation, and stunted economic growth.

#### **The Exodus Risk**

Wealth isn’t static, and neither are people. States like Texas and Florida, with no state income tax, have already proven attractive to individuals and companies fleeing high-tax states. Washington’s economy benefits greatly from the presence of high earners and innovative industries. Chasing them away with burdensome and unpredictable taxes is shortsighted.

#### **A Better Path Forward**

Rather than experimenting with risky fiscal policies, Washington should focus on stable, predictable tax structures that encourage investment, job creation, and long-term economic growth. Taxing hypothetical wealth may seem like a quick solution, but the long-term consequences are clear: capital flight, economic uncertainty, and a shrinking tax base.

If we want Washington to remain a hub for innovation and prosperity, we must reject policies that penalize potential wealth and focus instead on creating an environment where real growth can flourish.

Sources
http://www.marvinmckenzie.org
https://marvinmckenzie.substack.com/
https://www.amazon.com/stores/Marvin-McKenzie/author/B005OZV81Q?
https://www.smashwords.com/profile/view/MarvinMcKenzie
https://medium.com/@booksbymarvinmckenzie
https://macz.creator-spring.com/
https://ko-fi.com/marvinmckenzie14276
https://www.youtube.com/@MarvinMcKenzie
https://www.youtube.com/@ApologeticsAdvocates
https://www.youtube.com/@MarvinMcKenziePreacher
https://www.youtube.com/@LegendsofLiberty