The shift to index funds was triggered not by a belief in market efficiency, but by the surprising discovery that alternative investments are highly tax-inefficient for individuals due to non-deductible fees and ordinary income, creating a tax drag of up to 20%.

The implementation of wealth taxes could burst market bubbles. Since these taxes must be paid in cash, holders of illiquid assets (like stocks or real estate) are forced to sell. This forced selling creates downward pressure on prices, potentially triggering a broader market downturn.

The "Buy, Borrow, Die" tax strategy concentrates immense wealth, making the broader economy unhealthily dependent on the spending habits of the ultra-rich. As noted by The Wall Street Journal, this creates systemic risk; if the wealthy pull back spending, it could trigger a recession.

Ben Horowitz warns against wealth taxes on unrealized gains by citing Norway's experience. The policy required founders to pay taxes on their private company's rising valuation with illiquid stock, leading to an exodus of entrepreneurs and effectively dismantling the local tech ecosystem.

Investors with highly appreciated, concentrated stock can use financial products similar to real estate's 1031 exchange. They can pool their stock into a newly created, diversified ETF, deferring the capital gains tax event. This solves the immediate diversification risk, though the original low cost basis carries over.

The UK still charges a 0.5% "stamp" tax on stock purchases, a historical artifact from its colonial era. This transaction friction, unlike in the US market, disincentivizes trading and investment, particularly for retail participants, contributing to overall market inefficiency.

Well-intentioned regulations like Sarbanes-Oxley increased the burden of going public, causing companies to stay private longer. An unintended consequence is that the bulk of wealth creation now occurs in private markets, accessible only to accredited investors and excluding the general public.

Billionaire wealth taxes are easily dodged by relocating. A more robust policy would tax capital gains based on the jurisdiction where the value was created, preventing billionaires from moving to a zero-tax state just before selling stock to avoid taxes.

A major flaw in the unrealized gains tax is that it punishes all investors for the actions of a few. A more targeted and less destructive approach would be to tax the loans that wealthy individuals take out against their stock portfolios, targeting the actual cash they use without harming the underlying assets.