Why Capital Gains cuts my cost jobs

[The Rabbi]

The fundamental problem: The distinction between income and capital gains is a dishonest, disingenuous fallacy to begin with. Income is income is income. If you're gonna tax it, tax it all under the same tax structure.

Agreed. When Grandma sells her house, make sure she pays the full freight of income tax and doesn't get off with a smaller bill on a loophole....

I said the same structure. Which of course makes your post a non-sequitur.

See if you can suss it out for yourself exactly why.

I'm unclear as to what you mean. Maybe you can explain it a little.

If I bought gold in 1990 at $300/oz and sell it at 1500/oz that is certainly a capital gain. Now, some of that will be due to inflation. In some cases all "gain" is really illusory because of inflation.
But are you going to argue that I should pay no tax whatsoever on that gain? Or maybe average it over the time held? What do suggest?

 

[kaz]

The fundamental problem: The distinction between income and capital gains is a dishonest, disingenuous fallacy to begin with. Income is income is income. If you're gonna tax it, tax it all under the same tax structure.

Agreed. When Grandma sells her house, make sure she pays the full freight of income tax and doesn't get off with a smaller bill on a loophole....

I said the same structure. Which of course makes your post a non-sequitur.

See if you can suss it out for yourself exactly why.

Wow, a Latin term. Sure, you used it wrong but still it's Latin so I'm sill impressed.

It does follow, you're just assuming grandma doesn't live in Silicon Valley or somewhere housing appreciated more then her deduction. I guess then she's the evil rich so it doesn't matter.

 

[manifold]

Agreed. When Grandma sells her house, make sure she pays the full freight of income tax and doesn't get off with a smaller bill on a loophole....

I said the same structure. Which of course makes your post a non-sequitur.

See if you can suss it out for yourself exactly why.

I'm unclear as to what you mean. Maybe you can explain it a little.

If I bought gold in 1990 at $300/oz and sell it at 1500/oz that is certainly a capital gain. Now, some of that will be due to inflation. In some cases all "gain" is really illusory because of inflation.
But are you going to argue that I should pay no tax whatsoever on that gain? Or maybe average it over the time held? What do suggest?

I'm arguing that it's income to you and should get lumped in with the income you earn digging ditches.

 

[The Rabbi]

I said the same structure. Which of course makes your post a non-sequitur.

See if you can suss it out for yourself exactly why.

I'm unclear as to what you mean. Maybe you can explain it a little.

If I bought gold in 1990 at $300/oz and sell it at 1500/oz that is certainly a capital gain. Now, some of that will be due to inflation. In some cases all "gain" is really illusory because of inflation.
But are you going to argue that I should pay no tax whatsoever on that gain? Or maybe average it over the time held? What do suggest?

I'm arguing that it's income to you and should get lumped in with the income you earn digging ditches.

OK, 2 problems. The first is the inflation issue, as mentioned. The second is that is hurts capital formation, which ought to be a priority.

 

[manifold]

I'm unclear as to what you mean. Maybe you can explain it a little.

If I bought gold in 1990 at $300/oz and sell it at 1500/oz that is certainly a capital gain. Now, some of that will be due to inflation. In some cases all "gain" is really illusory because of inflation.
But are you going to argue that I should pay no tax whatsoever on that gain? Or maybe average it over the time held? What do suggest?

I'm arguing that it's income to you and should get lumped in with the income you earn digging ditches.

OK, 2 problems. The first is the inflation issue, as mentioned. The second is that is hurts capital formation, which ought to be a priority.

Despite my flippant remarks, I do understand your side of the argument and it's not without merit. However, IMO treating capital gains differently than income does more harm than good because it introduces incentives to make one look like the other and vice-versa, depending upon which is more advantageous at the time. For example, dividends are income. But if a company doesn't pay out profits in the form of dividends then their value is instead reflected in the share price and becomes a capital gain upon sale.

 

[The Rabbi]

I'm arguing that it's income to you and should get lumped in with the income you earn digging ditches.

OK, 2 problems. The first is the inflation issue, as mentioned. The second is that is hurts capital formation, which ought to be a priority.

Despite my flippant remarks, I do understand your side of the argument and it's not without merit. However, IMO treating capital gains differently than income does more harm than good because it introduces incentives to make one look like the other and vice-versa, depending upon which is more advantageous at the time. For example, dividends are income. But if a company doesn't pay out profits in the form of dividends then their value is instead reflected in the share price and becomes a capital gain upon sale.

That "can" happen if the company uses the money for a share buy back. If they just sit on it, as many are doing now, then it is neither income nor cap gain (to the shareholder).

I see your point. I just think that encouraging capital formation and efficient use of capital outweighs otehr arguments and points to a zero cap gains rate.

 

[manifold]

I see your point. I just think that encouraging capital formation and efficient use of capital outweighs otehr arguments and points to a zero cap gains rate.

Would you even make a distinction between short and long term capital gains for this purpose? Or do you think day traders at the CBOT shouldn't have to pay taxes on their gains?

 

[The Rabbi]

I see your point. I just think that encouraging capital formation and efficient use of capital outweighs otehr arguments and points to a zero cap gains rate.

Would you even make a distinction between short and long term capital gains for this purpose? Or do you think day traders at the CBOT shouldn't have to pay taxes on their gains?

What gains? lol.

Traders would seem to be engaged in the business. Thus it is not really an investing activity.
I dont know the answer to your question. I am giving broad outlines.

 

[Avatar4321]

I am seriously not seeing how the OP is reaching his conclusion. If we decrease/eliminate the Capital gains tax in the United States it will spur investment in the United States. How exactly would lowering taxation here encourage us to invest somewhere else? It doesnt make sense to me. I'm clearly missing a key part to this argument.

 

[The Rabbi]

I am seriously not seeing how the OP is reaching his conclusion. If we decrease/eliminate the Capital gains tax in the United States it will spur investment in the United States. How exactly would lowering taxation here encourage us to invest somewhere else? It doesnt make sense to me. I'm clearly missing a key part to this argument.

I think the argument is it would unlock funds that would be invested elsewhere.
But don't ask me as none of what he says makes any sense. He failed econ, no matter what he says.

 

[kaz]

I am seriously not seeing how the OP is reaching his conclusion. If we decrease/eliminate the Capital gains tax in the United States it will spur investment in the United States. How exactly would lowering taxation here encourage us to invest somewhere else? It doesnt make sense to me. I'm clearly missing a key part to this argument.

Therein lies the contradiction of the op. The premise is that it's better to invest overseas, so they will use the tax code to prevent people from selling their US assets so they won't be taxed. Which is absurd other then as a temporary short term measure. In the long run, if overseas is better, the money will go there. We need to stop using the tax code to punish US companies, that will create jobs.

 

[editec]

Smaller govt means Capitol loss.

I think you have missed the point or didn't read the posts. Instead of creating jobs eliminating the capital gains tax could instead cause us to lose jobs.

FWIW, I got it.

Thanks, too for posting this, too.

While I've never been a big supporter of ending capital gains, anyway, this is still another reason why it's a bad idea.

Basically, what is happening to this nation is that BIG CAPITAL is attempting to get wealth out of the USA (now that it has raped the nation of the middle class' wealth) and you just showed us how this idea would only assist that process.

People read " ATLAS Shrugged" and most of them really do not understand that it is the threat of the NEO CONS.

Their evil game plan is to suck the wealth out of this nation (mostly by using government do help them do so) leaving THEIR debts behind for the working classes to pay off, while they get their ill-got assets safely invested in foreign nations.

Evil, evil EVIL fucking bastards.

 

[Sactowndog]

Your basic argument is that more efficient use of capital will result in less economic activity.

Did you ever take Econ 101? Did you pass?

No my basic argument is when you reduce the capital gains tax it will cause portfolio investment to shift overseas and will increase the rate of labor arbitrage plays both will cause US jobs to decline.

I yes I did quite well in Econ and Finance.

Well, that's because you didn't make arguments like this when you did it. The Rabbi was correct, your basic argument is more efficient use of capital will result in less economic activity and it's ignorant. I don't have to have a degree in Finance to know that, I just have to not be an idiot. Though bonus, I do have an MBA, I'm in the Financial Management Honor Fraternity for my Finance grades and I spent a good chunk of my career in finance. You lose on logic, but if you want to trot out degrees I'm game as well.

If the more efficient use of capital by eliminating capital gains causes the average investor to disinvest in US equities and bonds and shift to foreign equities and bonds, what happens to demand? Demand falls.

As demand falls because capital has left the US market, US stock prices fall and interest rates rise. Both of these things would be damaging to the US jobs market.

If you truely are in the financial management Honor Fraternity you should be able to figure this out.

 

[Sactowndog]

Your basic argument is that more efficient use of capital will result in less economic activity.

.

It only shifts overseas if the perceived rate of return exceeds what it could earn here.
Typically that hasn't been the case.
But locking up money in investments is guaranteed to produce mediocre economic results.

The US markets over the last decade have been relatively flat. That has not been the case in emerging markets. By no measures has returns been the same.

 

[Sactowndog]

Yes, they do. If you mean do they "always" do that then no. But think of it this way.

Say the government takes 20% of your investment in Capital Gains, you own $10,000 in Ford stock, which doubled since you bought it for $5,000, but you want to buy GM stock because now you think their prospects are better. Sell the Ford stock and get $9,000, you buy $10,000 in GM stock making up the difference.

Without Capital gains tax, you could have bought more efficient GM for $10,000, but now it costs you $11,000. It costs you more money, so the hurdle is higher. We want cash to freely flow from less to more efficient investments.

Your point is correct but we don't want cash to flow to investments out of the US if we want to grow US jobs. Currently most investors are massively underinvested in overseas markets if you use the Harvard portfolio as a benchmark. Eliminate the capital gains tax and you could see a significant outflow of US investment causing a further lose of US jobs and things spiral down

 

[Sactowndog]

Therein lies the contradiction of the op. The premise is that it's better to invest overseas, so they will use the tax code to prevent people from selling their US assets so they won't be taxed. Which is absurd other then as a temporary short term measure. In the long run, if overseas is better, the money will go there. We need to stop using the tax code to punish US companies, that will create jobs.

No the premise is the average investor is massively under-invested in overseas markets based on both the Harvard Portfolio and the foreign markets share. By eliminating capital gains tax, US investors will move massively to balance their portfolio since any friction will be gone. The result will be a disaster for US jobs.

If you really want to help US companies and grow jobs you would raise the capital gains tax to the level of the personal income tax and you would reduce Corporate income taxes by an equal amount.

 

[Sactowndog]

The fundamental problem: The distinction between income and capital gains is a dishonest, disingenuous fallacy to begin with. Income is income is income. If you're gonna tax it, tax it all under the same tax structure.

Agreed. When Grandma sells her house, make sure she pays the full freight of income tax and doesn't get off with a smaller bill on a loophole....

Homes qualify for an exemption... Leave Grandma out of it.

 

[Sactowndog]

Cap gains taxes cause a distortion in investing activity because the tax consideration plays into it. Thus what had been a good investment will remain there long after the major returns are over, simply because selling the investment will trigger large taxes. Thus the next project will not get financed.

Are you saying that people hold onto investments even when it is no longer a "good investment" because they don't want to pay the capital gains?

Yes. Because the return on the old investment is made worse by the tax liability incurred by selling it.

Exactly and when you remove it and the general public moves to rebalance their portfolio it won't be a good thing for our employment prospects.

 

[Sactowndog]

Despite my flippant remarks, I do understand your side of the argument and it's not without merit. However, IMO treating capital gains differently than income does more harm than good because it introduces incentives to make one look like the other and vice-versa, depending upon which is more advantageous at the time. For example, dividends are income. But if a company doesn't pay out profits in the form of dividends then their value is instead reflected in the share price and becomes a capital gain upon sale.

That is just one problem. It also allows those businesses such as hedge funds to have a massive advantage in the market place for talent. The bulk of earnings for hedge fund managers are classified as capital gains. The tax disparity helps Hedge funds draw top talent away from other industries. Instead of generating IP which would result in more jobs for the rest of us they are developing computer algorithms to earn a fraction of a penny per transaction.

 

[The Rabbi]

It only shifts overseas if the perceived rate of return exceeds what it could earn here.
Typically that hasn't been the case.
But locking up money in investments is guaranteed to produce mediocre economic results.

The US markets over the last decade have been relatively flat. That has not been the case in emerging markets. By no measures has returns been the same.

You are measuring returns by the DJIA or S&P. That isn't the kind of investment anyone is talking about. Look at foreign investment in companies, factories, and facilities here and it tells a different story.