Why Capital Gains cuts my cost jobs

[8537]

Here is the difference, for me this topic is logic and for you it's religion. There is no way you've ever taken a finance class. I just specifically addressed this. And the answer as I told you is to stop punishing companies with the highest taxes in the Western world. Your solution of not addressing that but trying to tax people for taking their money out seeking a better investment is DOA to a critical mind.

Liberalism, wow. Socialism is the magic elixir, it's more capitalist then capitalism. Problem is we keep following your path more and more and the economy gets worse and worse. If it's the magic cure all, why can't it cure anything?

We don't have the highest taxes in the Western world. We happen to have one of the highest marginal rates, but effective rates (actual paymens) are quite low compared to most of the Western world.

Link please.

Explain the difference in your own words.

This link explains the situation in detail: http://www.cbo.gov/ftpdocs/69xx/doc6902/11-28-CorporateTax.pdf. You'll see that, among other data, the OECD average corporate tax revenues were 2.5% of gdp in 2002. US corporate tax revenues were 1.8 of GDP in 2002. At that same link, you can see that higher corporate tax rates are associated with higher gross fixed capital formation.

In my own words...

The marginal tax rate is simply the tax rate assessed on the last dollar of taxable income. It says nothing about what income is taxable, nor does it say anything about what types of credits, deductions etc...are available.

The effective tax rate is the actual rate an individual or a company pays.

For instance, I think we can both agree that a person making 2 million dollars per year is in the top income bracket. It is very likely that they are paying .35 cents of his last dollar in taxes to the government (unless his income is from capital gains).

However, his effective tax rate is not 35%. First, he deducts his mortgage interest, his kids, his yada yada...then, he pays 10% on the first $8K or so. He only pays 15% on the next 15K or so. I don't have the exact marginal rates in front of me, but you get the idea. He is only paying 35% on taxable income - and then, only on taxable income above $374,000 or so.

His effective tax rate, therefore, is much lower than 35%.

In the corporate world, companies only pay taxes on certain profits. Like couples taking a mortgage deduction, in the US companies take deductions for various things. Those deductions are more generous then other places in the world, and the portion of revenues exposed to the tax is smaller than in other places. Therefore, even though our top marginal rate is high our effective rate is lower than many European countries.

 

[Sactowndog]

I am talking about US markets versus foreign markets and debt instruments.

How are you measuring returns on US markets?

S&P 500 which is a pretty common measure

 

[Sactowndog]

Simply untrue. There was plenty of overseas investment going on.
And you conveniently ignore the fact that unemployment was under 6% for most of the Bush years, after NAFTA.

The Harvard Trust fund in generally considered a trend setter. In 1980 it had zero dollars invested overseas. Show me one link that shows any significant overseas investment in 1980. Everything I find says it was insignificant. In many cases, foreign countries didn't even have stock markets. It took Reagan's triumph over the USSR to spur the growth of stock markets world wide.

 

[The Rabbi]

How are you measuring returns on US markets?

S&P 500 which is a pretty common measure

Of stock market returns. That isn't the same as investment returns.

 

[The Rabbi]

The Harvard Trust fund in generally considered a trend setter. In 1980 it have zero dollars invested overseas.

ONe example is not really representative of anything.
{quote]
Joseph Benhard Mark Mobius was born to German and Puerto-Rican parents in Hempstead, New York. He earned his B.A. and M.S. in Communications from Boston University, and received a Ph.D in economics from MIT in 1964.[3] He also studied at the University of Wisconsin, University of New Mexico, and Kyoto University in Japan. He joined Templeton in 1987 as president of the Templeton Emerging Markets Fund (NYSE: EMF), a closed end mutual fund, and there integrated his knowledge of new international markets with Sir John Templeton's disciplined, long term approach to investing.[4] This was the first emerging market equity fund available to US investors,[5] and Mobius' one key condition to take on this challenge was that Templeton must open its first emerging market office, which it did in Hong Kong.[5]

So emerging market investing has been available to individual investors via mutual fund since 1987.
But anyone investing in GE, Ford, GM or a bunch of other companies is an overseas investor as all those companies have extensive non-US operations.

 

[Sactowndog]

Here is the difference, for me this topic is logic and for you it's religion. There is no way you've ever taken a finance class. I just specifically addressed this. And the answer as I told you is to stop punishing companies with the highest taxes in the Western world. Your solution of not addressing that but trying to tax people for taking their money out seeking a better investment is DOA to a critical mind.

Liberalism, wow. Socialism is the magic elixir, it's more capitalist then capitalism. Problem is we keep following your path more and more and the economy gets worse and worse. If it's the magic cure all, why can't it cure anything?

Actually I think it is religion for you and logic for me.

Couple points..... if you read much of what I have written I have talked about lowering corporate income taxes as they are too high and staying revenue nuetral by raising the capital gains tax.

The capital gains tax doesn't generally punish corporations unless they are buying or selling assets. Raising the capital gains tax would punish those corporations whose general strategy is buy control of a US company, off-shore it's workforce to cheaper locals, use the freed up capital to buy the next company.

I don't care about punishing those guys.

The econnomy is getting worse and worse and currently the capital gains tax is 5% lower than anytime since WW2. It's your path that is the problem.

 

[Sactowndog]

ONe example is not really representative of anything.
{quote]
Joseph Benhard Mark Mobius was born to German and Puerto-Rican parents in Hempstead, New York. He earned his B.A. and M.S. in Communications from Boston University, and received a Ph.D in economics from MIT in 1964.[3] He also studied at the University of Wisconsin, University of New Mexico, and Kyoto University in Japan. He joined Templeton in 1987 as president of the Templeton Emerging Markets Fund (NYSE: EMF), a closed end mutual fund, and there integrated his knowledge of new international markets with Sir John Templeton's disciplined, long term approach to investing.[4] This was the first emerging market equity fund available to US investors,[5] and Mobius' one key condition to take on this challenge was that Templeton must open its first emerging market office, which it did in Hong Kong.[5]

So emerging market investing has been available to individual investors via mutual fund since 1987.
But anyone investing in GE, Ford, GM or a bunch of other companies is an overseas investor as all those companies have extensive non-US operations.

I think you are making my point. The first international fund open to US investors was in 1987. At that point many countries didn't even have stock markets.

In terms of foreign operations yes they did but much of the shift of US operations off-shore was facilitated by the trans-oceanic fiber cables which dramtically lowered communication costs.

 

[The Rabbi]

So emerging market investing has been available to individual investors via mutual fund since 1987.
But anyone investing in GE, Ford, GM or a bunch of other companies is an overseas investor as all those companies have extensive non-US operations.

I think you are making my point. The first international fund open to US investors was in 1987. At that point many countries didn't even have stock markets.

In terms of foreign operations yes they did but much of the shift of US operations off-shore was facilitated by the trans-oceanic fiber cables which dramtically lowered communication costs.

NO, I've refuted your point.

Yes, there are more opportunities for overseas investments. But that includes overseas investors putting money here. Which they wont do if they perceive sub-par returns. And that doesnt mean necessarily buying stocks, which is probably a small part of overseas investments.

 

[Sactowndog]

I think you are making my point. The first international fund open to US investors was in 1987. At that point many countries didn't even have stock markets.

In terms of foreign operations yes they did but much of the shift of US operations off-shore was facilitated by the trans-oceanic fiber cables which dramtically lowered communication costs.

NO, I've refuted your point.

Yes, there are more opportunities for overseas investments. But that includes overseas investors putting money here. Which they wont do if they perceive sub-par returns. And that doesnt mean necessarily buying stocks, which is probably a small part of overseas investments.

How have you refuted my point when I said overseas investing was virtually unknown in 1980. You posted abouit the first international mutaul fund was available which this guy joined in 1987. For all you know it could have been the only International fund at that time which doesn't make international investing common. It was still uncommon and very few funds existed. Do you have any idea how many International mutual funds are available today verus then.

 

[Sactowndog]

S&P 500 which is a pretty common measure

Of stock market returns. That isn't the same as investment returns.

Fine show me a single measure of US Investment returns for the decade of the 00's that shows significant growth in the US.

 

[The Rabbi]

Of stock market returns. That isn't the same as investment returns.

Fine show me a single measure of US Investment returns for the decade of the 00's that shows significant growth in the US.

http://www.census.gov/compendia/statab/2011/tables/11s1290.pdf

Investment nearly doubled between 2000 and 2008. That isn't because the US is produced sub-par returns.

 

[Sactowndog]

Fine show me a single measure of US Investment returns for the decade of the 00's that shows significant growth in the US.

http://www.census.gov/compendia/statab/2011/tables/11s1290.pdf

Investment nearly doubled between 2000 and 2008. That isn't because the US is produced sub-par returns.

Actually I would say it is because of sub-par returns. As market-caps for US mid-markets have stagnated it has made them more vulnerable to acquisition. Sadly in some cases with equally disasterous results for US jobs.

As I posted in another thread a strategy used by some multinationals works as follows:
1) Company A uses labor arbitrage to increase net profits, increase cash flow and as a result increase their stock price.
2) With the increased cash flow and higher stock price Company A buys Company B with good IP and a higher cost basis
3) Under new management Company B employs labor arbitrage to to increase net profits, increase cash flow and as result increase their stock price.
4) Company A now buys company C and the cycle continues

Before you say this doesn't happen I have watched my own company execute this strategy for the past 10 years. Eliminating capital gains will put his cycle in hyperdrive since the owners of the acquired company won't have to pay capital gains tax, the cost of deals will lower and the rate of deals will increase.

Instead of eliminating capital gains if we eliminated corporate income taxes and increased capital gains taxes this cycle would slow down as earnings rose and deals became more expensive.

 

[The Rabbi]

So foreign companies invest here because they expect sub-par returns?
Thanks. I think I'm done with you.

 

[Sactowndog]

So foreign companies invest here because they expect sub-par returns?
Thanks. I think I'm done with you.

No I said sub-par returns over the past year have made it easier to acquire and that they can play the same labor arbitrage game my company plays. And that capital gains will make it worse.