Does this solve the problem of risk though?

Let’s say I buy a share for $1000. It grows in the first year to 1100. In the second to 1200. And so on, and so forth.

Let’s say the stock does really well over the next 10 years, and it doubles in value, 100 at a time - at some point I (as an investor) will have paid 25% of that, so I’m virtually paying 1250 for that $2000. Cool, that’s what would’ve happened if I had sold.

But if the stock tanks in year 11, I’m out 1250 instead of 1000. So… Where is the incentive for me to not sell?

And this is an example for a longer time, just so the loss is visible. But I should actually sell instantly whenever I have a small profit before the yearly tax gets taken, otherwise I am risking not only losing my initial investment, but also the tax I already paid. Whereas with the current system, I only pay tax for the gains, and I can justify the risk of continuing to hold that stock for the higher gains in the future.

With your system, I have no incentive. My risk is higher the more the stock is worth. It could go down at any point, and I’m not only out the initial investment, but also the tax that the government took for doing nothing.

And now let’s apply this to someone who is investing in the stock market to save money long-term (10-20 years). They will have a pretty diversified portfolio. Some companies will do well, some will stagnate, some will go under. Overall, they will statistically be turning a profit.

But that’s with the old system. Because with the one you propose, the losses will be even higher. All the companies that eventually go under and don’t turn a profit for your stocks will be not only costing you the initial investment, but also the subsequent profitable years. So people holding on to the stock can end up costing immeasurably more.

And an even worse scenario: stock “fads”. Look at gamestop, or better:nvidia’s recent rise. If I’m an Nvidia stockholder, I’m selling instantly. Otherwise I’m stuck paying the tax at the end of the year, and then am left holding worthless stock, once the price normalizes. Which is something that might happen anyway, but at least I have the choice of when to pull out, instead of it being forced onto me by the government.

And now let’s extend that example to the company itself. With everyone causing the price to rise, selling will be forced on everyone as well. In today’s system, some investors will ignore the price jumps and stick with the company. In your proposed system, those investors won’t be able to afford that, because the tax they would pay at the end of the year will be unreasonable. So they will ALL sell. The company stock will be worthless. Nobody will even buy it for a while, until it normalizes - you can’t risk the spikes and the tax that comes with them.

And let’s look at those billionaires now, and how this would affect them. In the first instance, they’d need to pay billions in taxes. How will they do that? They’ll probably sell stock. So the prices will drop for that stock, since the market will be overflowing with it. And this will hurt every single other small-time investor who bought stock in that company some years ago, paid tax for the increases, only to now have that stock worth a lot less. Except those guys aren’t billionaires and won’t have a few billion dollars remaining, they’ll get shafted by the state and be left with a lot less.

And none of those things even approaches the probably biggest problem of all: we’re taxing virtual gains, not actual gains. If I’m a person on the stock market and need to pay taxes for all my stock, okay, the state gets a bunch of money. And now let’s consider the stock market crashes and all my stock is worth less than before. All the money I paid to the state is actual cash, but it’s based on a value that doesn’t exist anymore. So it’s not real. We literally introduce money into the economy. Forget the risk to the end-user, we’re actually causing inflation here. If I spend $1000 on shares, the company improves its practices and this results in it turning a profit therefore making it worth $2000, I pay $250 on tax, and the company then goes back to its original practices, they sustain losses and the price drops back to $1000, for all intents and purposes everything about the situation has stayed the same, but the economy now has $250 more, for no reason. Forget about my personal loss, but this is the type of shit that can bury a country within the year. We devalue the currency because we added to it without having any actual change to attribute to the increase. There’s more money in circulation out of nowhere. Prices rise and salaries rise and inflation wreaks havoc. Today this type of action is already existing, but it’s in a controlled environment. A bank will provide x% interest on a deposit, but they will use that money to make more than what they give you on different markets. The government will tax you x%, but will tax your actual salary, not pretend money in the sky. Assuming these entities follow the law, inflation should be low enough to be manageable in those scenarios. But this? This is a net gain of currency. This is pure inflation, with no rhyme or reason.

I see very many downsides, with the only upside being that the state can get its money a bit faster, and even get money when the consumer loses (stock prices fall after tax is paid). But that just means consumers won’t participate in the stock market anymore, or that they will and it will backfire into inflation eating the country up.