That sounds like a viatical settlement for someone who is terminally ill. That's very different from a policyholder taking a loan against their own life insurance policy.
Viatical settlements are a fascinating investment, from the perspective of the buyer. For the policyholder, it is a way to gain access to the death benefit while they are still alive. A viatical settlement is possible even with a pure term life insurance policy that has no cash value. This is because a viatical settlement is generally only offered when a physician has certified that the policyholder is terminally ill and unlikely to live more than a year or two. It's not really about the cash value of the policy. It's about the death benefit. The investor buys the death benefit at a discount. They become the beneficiary of the policy, and they get the full death benefit when the policyholder dies. It's very much like buying a zero-coupon bond. But the maturity date is uncertain. Policyholders who take a viatical settlement sometimes beat the odds and live a lot longer than the doctors predicted. It is possible to sell a life insurance policy even if you are not terminally ill. But I think it's harder to find a buyer, and the discount would be a lot deeper.
So let’s pretend that this law gets through. What would be the impact on the equities markets? Would it encourage the ultra wealthy to sell more often instead of holding for very long periods?
The impact on equities markets might not be that significant. The ultra rich hold much of their wealth in assets that are not traded on the stock market, e.g., private equity and real estate. It might encourage the movement of more wealth into offshore trusts. Assuming as a thought experiment that the law passes, with respect to the unrealized capital gain that is subjected to tax, they might just continue holding it. When they eventually sell it, the gain is not going to be taxed again. Furthermore, once it is taxed in this manner, it follows logically that the asset would have a new basis, i.e., the fair market value at the end of the year, or that value that was used to determine the unrealized gain subject to tax. If the value then drops below this new basis, they would have a loss when they eventually sell it. I think it is very unlikely this will pass. But the idea of taxing the value of an asset instead of, or in addition to, the income it generates is not completely bat-shit crazy. There are other countries that do this, in very creative and complicated ways. It is seen as type of property tax. In the USA, when you hear the words property tax, you immediately think of real estate taxes. But there are many jurisdictions around the world that have taxes on the value of personal property, such as cars, boats, or works of art. In California, for example, the fee to license your car is a percentage of the purchase price or the value of the vehicle. To people in most other states, this sounds ridiculous. They are accustomed to paying a flat fee for their license plates, regardless of whether they are driving a 15-year old Honda or a two-year old Rolls Royce. But California is almost a different country LOL it's a personal property tax. And it is deductible on your federal income tax return, just like state income tax and real estate taxes.
We should all just move to a consumption tax and get rid of income tax entirely. https://taxfoundation.org/research/all/federal/us-consumption-tax-vs-income-tax/
Some corporate bonds have a feature called a survivor's option, which is sometimes referred to colloquially as a death put. If the bond is held by an individual (not a business entity), and that person dies, the estate has the right to call the bond, and get immediate redemption at par value, regardless of the maturity date. I've attached an example.
Absolutely not. That's an elitist wish I hope never exist, unless the consumption tax is based on income. This already exists in Denmark where speeding tickets are based on one's income. Working class? €50, upper class? €200. The pain is felt the same across income levels.