Cronos23

Taxing the Unrealized: A View on the Netherlands’ Planned 36% Capital Levy 🇳🇱 The Dutch merchant tradition was built on one principle: tax realized trade, not hypothetical valuation. A 36% tax on unrealized capital gains is not a technical tweak — it is a structural intervention into capital formation. I) The Mechanism a) Starting position 500 shares Value Jan 1, 2028: €50,000 Value Jan 1, 2029: €100,000 Unrealized gain: €50,000 You did not sell. The state treats it as income. b) Exemption €3,600 (married) Taxable: €46,400 Tax at 36%: €16,704, payable in May. Liquidity irrelevant. c) Market correction scenario Portfolio falls to €60,000. Tax bill remains €16,704 (based on peak valuation). d) Forced sale After paying tax: €43,296 left. Shares drop from 500 to 360. 28% of ownership permanently gone. e) Economic result Final value: €43,296 Original cost: €50,000 Net: –€6,704 A €10,000 real gain becomes a loss. This is not taxation of profit. It is confiscation of volatility. II) Why This Is Destabilizing a) It Violates the Realization Principle Prices reflect expectations, time preference, and risk. Taxing unrealized gains assumes certainty where none exists. It turns market signals into tax liabilities. b) It Forces Pro-Cyclical Selling Bull markets expand the tax base. Corrections force liquidation into weakness. Volatility is amplified, and long-term holders are penalized. c) It Destroys Compounding Capital formation requires reinvestment and deferred taxation. Annual taxation of appreciation weakens equity ownership and private wealth accumulation. III) Outlook If capital is taxed independent of liquidity, behavior adapts. Migration HNWIs shift domicile toward lower-tax jurisdictions (Switzerland, UAE, Singapore). Holding structures move abroad. Wealth Drain Entrepreneurs delay IPOs, avoid domestic listings, and build offshore. Money Drain Capital rotates from public equities into private vehicles, hard assets, gold, and bitcoin — assets harder to mark annually. Brain Drain Talent follows capital. When upside is taxed before realization, risk-adjusted innovation declines. IV) The Deeper Shift This policy moves: - From taxing transactions → to taxing appreciation itself. - From taxing income → to taxing expectation. The Netherlands 🇳🇱 prospered through merchant accounting, realized profit, and capital preservation. Detaching taxation from realization may raise short-term revenue. - Medium term, it raises emigration. - Long term, it erodes the capital base. - And capital is what sustains prosperity.