I was watching a segment from CNBC on YouTube and was surprised by the fact that the government intends to make the tax rate retroactive after the law is passed so that the new tax rates will apply to stocks owned before the law was passed.
I was wondering if in criminal law, the passing of a law that makes punishment retroactive after the law was passed is also possible making it possible for past crimes to be punished in the United States.
No. This is black-letter constitutional law. From Article 1, section 9:
No Bill of Attainder or ex post facto Law shall be passed.
This is routine for tax laws, and leniency in criminal laws can be made retroactive, but criminal laws may not be made more strict retroactively (as this would constitute an ex post facto criminalization of conduct, as @Mark notes in his answer).
will apply to stocks owned before the law was passed.
There it is. They're talking about stocks you own now, and continue to own past the tax change.
Well, that's how capital gains work. The taxable event occurs when you sell.
That's because stocks can come back down. You don't know if you gained or lost until you sell. It just wouldn't work to tax capital gains on a stock you are still holding. Its value could fall after the tax was paid.
As such, changes in capital gains tax rate are not "ex post facto".
So if they change capital gains tax rates to 25% tomorrow, you are now "in the soup" with any securities you had not sold by today. There will be no way to avoid that higher tax rate.*
Even though the lion's share of the gains happened prior to the capital gains tax rate going up. Suppose in 1953 you acquired ExampleCo for $1/share. As of today, it is now worth $2001/share. If you sold it today, you post $2000 capital gains, and pay say 20% capital gains or $400/share.
But tomorrow, they raise the capital gains tax to 25%. You sell tomorrow when it's worth $2005/share, your gains are $2004 and your tax is $501/share.
Rich people are saying "we don't mind paying the 25% rate on the $4, we mind paying it on the $2000 since capital gains did occur when the tax rate was lower". *That logic fails, however. Because the capital gains were not, in fact, lower when it enjoyed the lion's share of its gains. Say the stock increased value 100x during a 40% capital gain period, and then another 20x during a 20% period. How do you even break that out? It's a mess.
OK, so the wealthy have a simple answer for that. They want to sell the assets today (e.g. at $2001)... capture their gains and pay the capital gain tax at the old lower rate (e.g. the $400)... and then re-purchase the assets at market (i.e. $2001). So if they sell tomorrow they only pay $4 of the higher capital gain. Nice try, but when that's done to avoid taxes, it's called a wash sale and the sell/buy is ignored.
* well, there sort-of is. You can donate the stock as a stock to charity. The charity will sell the stock, and since they sold it not you, they pay the capital gains, at the charity capital gains tax rate of 0%.
However, you get the full write-off at the appreciated value, not as a capital loss but as a proper deduction coming off plain income. And without having to pay capital gains tax. Crunch it both ways and include state tax, you don't make as much as simply paying the tax, but the charity gets a great deal more than you sacrifice.
Even the smallest charity can accept a stock gift, if you use a donor-advised fund as an intermediary. That is free, subsidized by people like me who leave funds parked there and pay 0.6% a year for the privilege.
The distinction between tax law and criminal law becomes immaterial the moment a person is charged with tax evasion (or any other punishable offense) per any portion of the tax code. Tax codes are therefore apt to become criminal law, and therefore equivalent arguments regarding ex post facto apply.
This observation is of course redundant since per the accepted answer by @Mark, ex post facto law of any kind is patently unconstitutional.
