Taxing Capital Gains Yearly
There's a great video where Larry Summers, Gregory Mankiw and Emmanuel Saez discuss.
Would a “Wealth Tax” Help Combat Inequality? A Debate with Saez, Summers, and Mankiw
At minute 1:21 theres is a question as to realizing capital gains on a yearly basis and if there is an economical reason for keeping it the way it is ie on realization vs every year. I'll paraphrase a bit
Ignoring administrative issues is there any economical reason we don't tax capital gains on a yearly basis rather than waiting?
I don't know if the person asking was trying to just ask a question that Larry and Emmanuel could agree on but at this point in the video it's evident that Larry Summers had had enough of Emmanual Saez.
The answer to the question in the video is good from Larry that cuts to the heart of the matter because capital is not easily divisible.
Here's another great explanation from a very famous economist. Answer from John Clark Bates
Again, capital is perfectly mobile; but capital goods are far from being so. It is possible to take a million dollars out of one industry and put them into another. Under favorable conditions, it is possible to do this without waste. It is, however, quite impossible to take bodily out of one industry the tools that belong to it and to put them into another. The capital that was once invested in the whale fishery of New England is now, to some extent, employed in cotton manufacturing; but the ships have not been used as cotton mills. As the vessels were worn out, the part of their earnings that might have been used to build more vessels was actually used to build mills. The nautical form of the capital perished; but the capital survived and, as it were, migrated from the one set of material bodies to the other. There is, indeed, no limit to the ultimate power of capital, by changing its forms of embodiment, thus to change its place in the group-system of industry. (_Distribution of Wealth_, p. 118) https://www.econlib.org/library/enc/bios/clark.html
Capital is rarely in liquid form. The vast majority of capital is tied up in non liquid assets like land, factories, plant etc. A good example is your house.
In a previous post I mentioned some of the Economic Skullduggery mentioned in the video, it’s worth watching the whole video.