Oaktrees Howard Marks on Unrealized Capital Good points Tax, Janet Yellen

US Treasury Secretary Janet Yellen reportedly said she would consider taxing unrealized capital gains – but billionaire Howard Marks said it was not a practical plan and could hurt sentiment among investors.

“I think that would hit the mood. Obviously, it would make it less attractive to be an investor when all things are the same,” said the popular investment guru, who is also the co-chair and co-founder of Oaktree Capital.

Unrealized capital gains refer to the theoretical increase in the value of assets that an investor is holding onto. Profits will only be realized if the investor sells the asset at a higher price than was originally paid for the purchase.

The possibility of taxing high net worth investors on these still-to-be-realized gains was raised by Senator Ron Wyden, D-Oregon, who is likely to become the chairman of the Senate Finance Committee.

Yellen, who was named head of the Treasury Department by US President-elect Joe Biden, said she would consider such a proposal to boost government revenues, Reuters reported. That remark was made during their confirmation hearing on Tuesday and “raised eyebrows” from some Senators and Wall Street investors, the news report said.

The only way for investors to avoid this taxation is not to make a profit on their wealth, which is “a bad idea,” Marks told CNBC’s Street Signs Asia on Wednesday.

“Now the question is … what do people do with their money? Money has to go somewhere, it can’t be in the ether,” he said.

“I don’t think it’s a practical plan, and I don’t know how you tax everyone’s wealth at supposed market value each year. And then there’s the big question, what if you have it a bad year? Do you get a refund? “Asked Marks rhetorically.

However, Marks also said he would not “question” Yellen’s move to support the US economy. If confirmed, Yellen – who became the first woman to hold the chairmanship of the Federal Reserve and headed the US Federal Reserve from 2014 to 2018 – will also be the first woman to hold the position as Secretary of the Treasury.

Yellen said Tuesday the US government should “act big” to help the economy bounce back after being badly hit by Covid-19. She acknowledged the country’s debt is rising, but said the benefits of spending on more relief far outweigh the risks of higher debt burdens.

Marks said he agreed that it was necessary to “save the economy first”.

“There are negative possible consequences of the debt and deficits – but the fact that they exist doesn’t mean you shouldn’t. You have to do it, you have to save the economy first,” he said.

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