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Article Summary
The debate over an unrealized capital gains tax is expanding beyond campaign rhetoric. U.S. lawmakers have explored taxing appreciation before assets are sold, while the Netherlands has advanced legislation taxing annual returns that include unrealized gains. Migration data, constitutional questions, and international experience are shaping the policy discussion.
What Is an Unrealized Capital Gains Tax?
An unrealized capital gains tax would require taxpayers to pay tax on asset appreciation even if the asset has not been sold.
Under current U.S. law, capital gains tax applies when an asset is sold and a profit is realized. One topic of debate is the unrealized capital gains tax, which would apply even if assets are not sold. If an investor buys stock for $50 and sells it for $500, the $450 gain is taxed. If the stock rises to $500 but is not sold, no tax is due.
Proposals involving unrealized gains would change that framework by taxing annual increases in asset value.
Supporters describe such proposals as tools aimed at ultra-wealthy households. Critics argue the change would alter the definition of taxable income and create valuation and liquidity challenges.
U.S. Policy Proposals and State-Level Debates
In recent years, federal proposals have included versions of mark-to-market taxation targeting households with net worth exceeding $100 million. These proposals have not passed Congress.
At the state level, California lawmakers have debated billionaire-focused wealth tax measures. Illinois legislators have also explored mark-to-market approaches in past sessions. None of these proposals is currently in effect.
These debates occur amid broader discussions about income inequality, budget pressures, and the taxation of concentrated wealth.
Migration Trends and Tax Incentives
State-level tax policy has drawn attention in part because of recent migration patterns.
According to IRS Statistics of Income migration data:
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Between 2020 and 2022, Florida recorded over $39 billion in net adjusted gross income (AGI) inflows from other states.
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During the same period, California experienced approximately $23 billion in net AGI outflow in one reporting year.
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Illinois and New York also recorded multi-billion-dollar net AGI losses.
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Higher-income filers represented a significant share of outbound income from some high-tax states.
Several high-profile executives have relocated to Florida in recent years.
Ken Griffin moved Citadel’s headquarters from Chicago to Miami in 2022, citing Illinois’ fiscal and policy environment. Jeff Bezos relocated from Washington state to Florida after Washington implemented a state capital gains tax. Mark Zuckerberg has expanded property holdings in Florida amid debate over California’s proposed wealth-tax measures.
Each relocation involved multiple stated factors, including business climate and lifestyle considerations. However, the tax implications of differences in state residency have been widely discussed.
Economists note that high-income households and capital are generally more mobile than lower-income households, which can influence how tax policy affects revenue projections.
International Example: The Netherlands Reform
The Netherlands has recently advanced legislation that would tax annual returns on assets, including unrealized gains.
In February 2026, the Dutch House of Representatives approved a reform to its “Box 3” wealth-tax system. If approved by the Senate and implemented in 2028, the measure would impose a 36% tax on actual annual returns on savings and investments, including year-end increases in asset value.
The reform follows court rulings that struck down the previous Dutch system, which taxed assumed returns rather than actual performance.
While the Dutch framework differs from U.S. income tax law, the proposal represents a move toward taxing appreciation before sale. Supporters argue it aligns taxation with actual economic returns. Critics raise concerns about valuation complexity and potential capital mobility.
Wealth Taxes in OECD Countries
According to the OECD report The Role and Design of Net Wealth Taxes:
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Twelve OECD countries imposed net wealth taxes in 1990.
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Today, only a small number, including Norway, Spain, and Switzerland, maintain broad-based wealth taxes.
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Countries such as France, Sweden, Germany, and others repealed wealth taxes over time.
In several cases, wealth taxes generated relatively modest revenue compared to total tax receipts. Policymakers cited administrative costs and economic competitiveness concerns in repeal decisions.
Supporters of wealth taxation argue that modern enforcement tools and high thresholds can improve outcomes.
Liquidity and Valuation Considerations
One issue frequently raised in the unrealized capital gains tax debate is liquidity.
Asset values can increase without producing cash flow. If taxes are assessed on appreciation, some taxpayers may need to sell assets or borrow funds to pay tax liability.
Valuation is another factor. Publicly traded securities can be priced daily, but private businesses, real estate holdings, and closely held investments often require appraisal estimates.
Policy design would determine how these issues are addressed.
Constitutional Questions in the United States
The U.S. Constitution authorizes Congress to tax income under the 16th Amendment.
In Eisner v. Macomber (1920), the Supreme Court held that income generally requires realization. More recently, in Moore v. United States (2024), the Court upheld a tax on certain undistributed foreign corporate earnings but did not fully resolve whether unrealized appreciation qualifies as income in all contexts.
Legal scholars remain divided on whether a broad unrealized capital gains tax would withstand constitutional challenge.
Any federal implementation would likely face judicial review.
Why the Debate Matters Beyond Billionaires
Although many proposals focus on ultra-high-net-worth households, the debate centers on a broader policy question: when does income become taxable?
Under the current system, taxation is tied to realized transactions. Proposals involving unrealized gains would shift taxation toward annual valuation changes.
Whether such a shift remains narrowly targeted or expands over time depends on legislative design and political developments.
As lawmakers in the United States and abroad revisit wealth-based taxation models, the unrealized capital gains tax debate continues to evolve.
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FAQs
What is an unrealized capital gains tax?
It is a tax on increases in asset value before the asset is sold.
Has the United States implemented such a tax?
No. Various proposals have been introduced, but none are currently law.
What did the Netherlands approve?
The Dutch House approved legislation that would tax actual annual returns on investments, including unrealized gains, if enacted by the Senate.
Why do some economists focus on migration data?
High-income households and capital can relocate between states, which may affect tax revenue outcomes.
Is an unrealized capital gains tax constitutional?
The issue is unsettled and would likely be decided by courts if enacted federally.
