Taxing Unrealized Gains
A Hypothetical Case Study
Let’s talk about how a “wealth tax” actually works in the real world using a system everyone understands.
Imagine that Notch incorporated a company to make Minecraft a reality. To survive the first two years, pay rent, and buy server infrastructure, he finds an investor who gives him $200k for 10% of the company—a standard, personal Shark Tank deal.
Fast-forward: Minecraft becomes a global hit. Microsoft sniffs around and makes a massive acquisition offer, but Notch refuses. He wants to keep running the game as an independent service himself.
His investor is furious. They want the big payday; they don’t run companies long-term, they exit them. But Notch won’t budge.
To bypass the deadlock, the investor decides to sell their 10% stake directly to Microsoft for $250 million, wiping their hands of the drama. Microsoft takes the 10% minority seat, planning to use that leverage to pressure Notch later.
The “Net Worth” Illusion
Under the way the media talks about “net worth” right now, Notch is suddenly declared a multi-billionaire.
The Reality: Nobody gave him a single dollar. He is labeled a billionaire simply because two completely external entities engaged in a private transaction that Notch had zero part in.
Is it fair to call Notch a billionaire just because other people traded a small slice of his company at that valuation?
Politicians pushing a 5% wealth tax on unrealized gains say yes. They would hand Notch a $112.5 million tax bill.
But remember: Notch doesn’t have $112.5 million. His wealth is entirely tied up in code and servers. To pay the state, he is forced to liquidate a portion of his remaining 90% equity.
The Corporate Bullying Loophole
This is exactly where you hand Big Business the ultimate tool to bully and crush small inventors.
When Notch goes to Microsoft out of desperation to sell 5% of his company to cover the IRS bill, Microsoft can simply look at the chessboard and say:
“Hey, that $250 million valuation was what we were willing to pay to get our foot in the door.”
“Now that we know the IRS is forcing you to sell, we’re only willing to pay $150 million for your entire remaining 90%.”
“Take it, or go to federal prison for tax evasion. But hey, don’t worry, you’ll still walk away with a cool $37.5 million.”
The Bottom Line
A tax on unrealized gains isn’t “making billionaires pay their fair share.”
It is an administrative eviction notice designed to force independent creators to surrender their intellectual property to corporate monopolies.