Document Type

Article

Publication Date

1998

Abstract

Perhaps no concept in tax law is so well established, and yet so widely criticized, as realization, the rule that defers tax on appreciated property until it is sold. In this Article, Professor Schizer offers a new justification for realization: It is a subsidy for savings. The recent reduction in the capital gains tax rate suggests that Congress wants such a subsidy, the author observes. He then argues that realization has a significant advantage as a subsidy. It is credible, in that taxpayers expect it to strvive long enough for them to collect it This is important, Professor Schizer then argues, because realization offers taxpayers no benefit when an investment is made. It offers only the government's word – a promise, in essence – that unrealized appreciation will not be taxed. The author then denonstrates that even though tile government remains free to renege on this promise taxpayers will not expect this for reasons rooted in history, administrability, and politics. Taxpayers thus will have more confidence in realization than in another "promise" subsidy, a low capital gains rate. Notwithstanding this advantage, tie author then points out, realization has unique disadvantages, such as the tendency to lock investors into particular investments, and also shares efficiency and equity concerns common to all savings subsidies.

Disciplines

Law | Tax Law

Included in

Tax Law Commons

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