There is no such thing as truly passive - the assets in this case are being used by providing capital to the markets and holding shares of companies that may or may not succeed. That’s “doing something” with these assets. The family heirloom that could bring you over the threshold? It’s collecting dust.

The stock investments incidentally ARE already taxed, whether you are actively managing them or if someone else is doing it for you and collecting a fee in the process.

By the same tack, is there any such thing as 'passive' wealth, then? Some things like cars depreciate, and others (like gold and real estate) appreciate. Why should it be off limit to tax these things?

Their appreciation is useless (and speculative!) until you sell them. When you sell them the gains are taxed.

California doesn't even tax gains at a lower rate than ordinary income...

You're already taxed on passive income.

Capital gains taxes are already a thing. You just pay on liquidation instead of having to come up with cash every year.

First, let's recognize that this is a completely made-up criteria for when to apply the tax, then: there's no "natural" ethical principle for why it's ok to tax at liquidation vs tax continuously.

The question, then, is whether one method is actually better than another under some set of criteria. The original comment's 'I don't feel like it' is insufficient in my mind.

The reality of the current system is that we have absolutely enormous wealth bubbles hidden away basically forever. Once you're a billionaire, there's no REAL need to liquidate things on a regular basis. You'll tend to store the vast majority of that wealth in things that appreciate (because you have the choice, and no one needs that many cars, even you), so the bubble grows continuously. Then conversions will mostly happen at carefully judged points in time+method to minimize tax owed. A wealth tax puts some small check on the runaway growth of assets, and provides a more steady+predictable income stream for governments.

Finally, I would like to reinforce that the 'you' used in all of these comments almost certainly include only "temporarily embarrassed" billionaires. Common sense household economics have near-zero relevance for thinking about wealth on the scales we should be concerned with here. Actual billionaires should have no trouble coming up with cash for a wealth tax: beyond some point, the wealth is a mostly undifferentiated mass of assets. If 'you' can project what 'you' owe for the tax, 'you' know how much you need to liquidate to pay it.

Are you familiar with the history of AMT? When it was enacted, it was meant to target an extremely small set of households, on the order of 1,000 iirc. But the thresholds weren’t indexed to inflation, and so now it triggers on a huge number of people every year. Maybe we are all temporarily embarrassed billionaires ;-).

Seems like you suggest one solution directly in the comment? Another: explicitly cap the percentage of people taxed by the law.

I do, but these things never seem to be indexed to inflation. Perhaps they don’t want to overtly politicize how we calculate inflation?

passive income is taxed.