When Paper Gains Become Real Taxes

Well now I’m ashamed to admit that my surname is Dutch.

Last week, politicians in the Netherlands introduced a new measure that ranks among the dumbest economic ideas man has ever dreamt up. I mean, communism is a pretty stupid idea because human nature assures that “from each according to his ability, to each according to his needs”—aka: equality for all—can never work.

But the Dutch?

Once there was a time when Argentina competed against America for financial supremacy in the western hemisphere. So much wealth coursed through the land of malbec that “Rich as an Argentine” was a common saying of the day, even in places such as New York.

My bet: “Dumb as a Dutchman” takes root because of this boneheaded policy.

That policy: The Dutch House of Representatives voted last week to advance a bill that imposes a 36% tax on the annual, unrealized gains that accrue in stocks, bonds, and cryptocurrencies. Now, at the time of writing, the bill is still pending senate approval, but should it get the green light, these changes would come into force in January 2028.

To over-emphasize this, we’re talking about UNREALIZED gains.

Paper gains.

Gains that do not actually exist.

Like I said, “dumb as a Dutchman.”

Why Dutch politicians are pursuing this bit of numbskullery is what you might suspect: The government’s widening budget woes because of structural spending increases on healthcare and military and whatnot. History is clear that when governments steer themselves into a financial mess, they always rob the people. 

Of course, I do not live in the Netherlands. Likely, you don’t either. So you have every right to ask, “Why are you so tweaked, El Jefe? It’s not like this affects you.”

That is a very true statement. And happily so.

However… you might recall that Kamala Harris, when chasing her White House dreams, proposed a tax on unrealized gains on the ultra-wealthy, those with a net worth exceeding $100 million. Prez. Biden, too, proposed something similar while he was in office.

And, yes, $100 million net worth definitely grandfathers me out of that conversation.

That, however, is not our point.

Once government starts down this path, it’s a quick ride from taxing the unrealized gains of the ultra-wealthy to taxing the unrealized gains of Average Ma and Pa American.

I say that because desperate countries impose desperate policies when chasing any money they think they can get their greedy little paws on in order to save the republic from the stupidity of politicians who have been given unfettered access to a nation’s treasury.

And America is desperate.

It might not act that way outwardly just yet, but very smart voices all over the world are calling out America’s incoming crisis. I’ve been yapping about it now for 15 years or so—the growing concern that too much debt and annual debt-repayment costs that now consume more than 15% of the federal budget can only lead America to a Come to Jesus Meeting that’s guaranteed to go not so well.

Future US politicians will look at the dumb Dutchmen and figure that if they can stick their finger in the dyke of fiscal woes by robbing the masses who have money, then we certainly can too.

And suddenly, American capitalism begins to look a whole lot like “command economy socialism,” the worst form of socialism because it expropriates what it doesn’t own in order to strengthen a weakening state.

In Soviet Russia and Maoist China, that was expropriating private property and giving it to the state.

In the land of stroopwafels, expropriation is taking from the people investment gains that don’t exist, thereby forcing investors to, very likely, sell off assets just to pay the tax on profits they never received.

That’s antithetical to the very notion of planning for tomorrow, or planning for retirement. Overcoming a 36% hit to the annual profits in your nest is a huge obstacle.

How is anyone supposed to adequately save for retirement when government is taking away your gains before they’re even real?

There are plausible simulations where the shares one owns could be reduced to zero value over time by way of phantom-tax taxation.

Meaning a series of good years followed by bad years leads to a situation where taxes imposed on gains in the good years reduces the amount of shares one owns (this assumes the investor has to sell shares to cover the taxes)… and then the returns in the bad years don’t recover enough to replace the value lost to those necessary stock sales in the good years.

So, you find out one day that you spent decades working and busting your butt to save for retirement… only, you have literally nothing to show for it because the Dutch government needed your money more than you did.

Now, to be clear, I am not saying this is where America is headed. I’m just positing an idea that in desperate times, countries that are deeply troubled financially, such as modern America, pursue stupid plans.

FDR did that back in 1933, when he confiscated gold to shore up a collapsing US dollar.

Tricky Dick Nixon did it back in 1971, when we took the dollar off the gold standard to shore up a collapsing dollar.

Today’s America has to find another rabbit to pull from the hat soon because the country’s fiscal sitch is worsening.

Will some American politician(s) reprise the role of Dumb Dutchman to meet America’s money needs?

Who knows?

My bet is that, at some point, they’ll try.