How are unrealized stock gains taxed under current federal law and do any proposals target billionaires' paper wealth?
Executive summary
Under current federal law, capital gains are generally taxed only when they are realized — that is, when an asset is sold — so increases in stock value that remain on paper do not trigger income tax . In response to concerns about tax avoidance by the ultra‑wealthy, several federal and state proposals have floated taxing unrealized gains or imposing minimum taxes on very wealthy households’ income that would count unrealized appreciation, most prominently the Biden administration’s and related “billionaire minimum tax” ideas embraced by Vice President Harris [1] [2] [3].
1. How current federal law treats unrealized stock gains
Under the existing federal framework, unrealized appreciation in stocks — gains that exist on paper while the owner holds the asset — is not treated as taxable income; only realized gains on sale become subject to capital gains tax at long‑term rates of 0%, 15% or 20% depending on income . This longstanding rule means taxpayers who refrain from selling do not report or pay tax on increases in market value, and certain transactions like borrowing against securities are not treated as taxable events because loan proceeds are not income .
2. Why unrealized gains matter politically and practically
Critics argue that taxing only realized gains enables the very wealthy to accumulate and spend wealth while triggering little or no taxable income by using loans or other strategies instead of selling appreciated assets, and heirs avoid built‑up taxes through the step‑up in basis at death — arguments drawn from observers and reporting describing how billionaires can live off asset‑backed borrowing without realizing gains [1]. Supporters of change say taxing unrealized gains or counting them for a minimum tax would reach wealth that now escapes annual income taxation and could raise substantial revenue from a tiny slice of taxpayers [1] [4].
3. What federal proposals have been put forward
The Biden administration proposed a “Billionaire Minimum Tax” in its FY2025 budget that would impose a minimum tax rate (reported as 25% in some summaries) on total income for households with more than $100 million in assets and would include unrealized gains in the calculation of that “true income”; Vice President Harris has expressed support for similar ideas and specifically embraced taxing unrealized capital gains for taxpayers above certain wealth thresholds during her campaign [1] [2] [4] [3]. Analysts and advocacy groups characterize these federal ideas as either mark‑to‑market taxation of unrealized gains or as a minimum tax that treats unrealized gains as part of income for ultra‑wealthy filers [5] [3].
4. State experiments and related initiatives
Outside Washington, states and ballot backers have proposed a range of measures that would tax unrealized wealth directly, including California’s proposed one‑time “Billionaire Tax” on net worth above $1 billion and Illinois proposals contemplating mark‑to‑market taxes on unrealized gains and broad asset bases; those measures raise valuation, liquidity, constitutional and retroactivity questions noted by legal and fiscal analysts [6] [7] [8] [9] [10]. Proposals vary widely — from one‑time levies on net worth to annual mark‑to‑market taxes covering many asset classes — and commentators warn of practical and constitutional hurdles [6] [8] [9].
5. Main arguments for and against taxing unrealized gains
Proponents, including think tanks and the White House, argue taxing unrealized gains would prevent wealthy taxpayers from avoiding income tax through borrowing and would make taxation of wealth fairer and more consistent with how property and retirement accounts are taxed in other contexts [3] [5]. Opponents — including conservative think tanks and business groups reflected in state‑level pushback — warn of complexity, valuation difficulty, incentives to relocate, increased avoidance, and legal challenges to taxing income before realization [2] [8] [11] [12]. Both sides point to real tradeoffs: potential revenue versus administration, liquidity and constitutional concerns [5] [11] [9].
6. Practical reality and unresolved questions
Reporting and policy analysis show the debate is active but unresolved: federal proposals have been discussed and appear in budget submissions and campaigns, while states test diverse approaches, yet major legal, administrative and behavioral questions — how to value private assets annually, what thresholds to set, and whether courts would uphold pre‑realization taxation — remain contested and unsettled in the sources available [1] [8] [9] [7]. The evidence demonstrates intent and multiple models to target “paper wealth,” but does not show a finalized federal shift away from the realized‑gain tax baseline described in current law [4].
7. Bottom line
Today, unrealized stock gains are not taxed at the federal level; policymakers have proposed several mechanisms to target billionaires’ paper wealth — from minimum taxes that count unrealized appreciation to state wealth levies — but those proposals face technical, legal and political headwinds and have not yet replaced the core legal principle that gains are taxed when realized, according to the reporting and analysis available [1] [6] [3].