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Taxing Capital Gains

That makes sense, Cav.
 
I haven't bothered reading most of the posts so far so not sure if it's mentioned or not, but most proponents of a higher capital gains tax fail to take into account one very important piece of information: The money being taxed at applicable capital gains rates has already been taxed at the federal, state and municipal rates before being invested and taxed again (obviously if no state or municipal tax in state of domicile then doesn't apply). People act like capital gains rates are too low and that 'so and so' hasn't been paying a high enough tax rate and I find that logic to be flawed because they had to have been taxed already at multiple levels and brackets before being taxed at a capital gains rate.

Think about it, before that money can go in your pocket and get sent to a financial institution where, heaven forbid, you make the ghastly decision to invest your money and make a profit you've already been taxed to death. Federal, state, FICA, FUTA, etc... Additionally, the company(ies) that you're investing in is/are run by people that are being taxed at those same levels (more than likely at higher rates) and then, corporations are taxed when they produce revenues, and then are effectively taxed yet again when/if they issue a dividend. You as an investor, then get taxed on said dividend and are also taxed on any growth that you realize by way of said company being a good investment. Does that really seem efficient? The book 'The Fairest of Them All' lays out some really interesting points regardless of your own political association/beliefs but aside from all of that, a 20% capital gains rate is significantly higher than most other tax payer's effective rates anyhow. Sure, 20% sounds like a low bracket, but it's not bracketed; it's an effective rate!

The fact of the matter comes down to whether you think your tax dollars are being used efficiently by a governing body to solve problems that need to be solved and that you and your community are affected by and care about. My inclination is that our regulatory bodies and government entities are extremely inefficient and would go bankrupt in private enterprise without the guarantee of a steady stream of tax collections. Thus, I can think of no better waste of money than increasing taxes for the sake of increasing revenue to the federal government to go to waste.

My only distaste is for bullshit moves to put money offshore or for corporations to use 'aggressive tax' techniques to skirt the appropriate amount of tax that they have due. But raising taxes on small business owners and working individuals when we nearly 70% of our GDP comes from consumer purchases? Sure, that's a great plan...
 
DeaconCav06 said:
I'd trade a higher cap gains rate for a reduced corporate rate.
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Boom. This. And give an exception to certain pass through entities so small business owners/S-Corps can be treated similarly without increasing their personal taxes.
 
PhDeac said:
How does the lower rate do that? Seems like it does the exact opposite. A lower capital gains rate makes it more reasonable to just invest money than take a risk of creating jobs.
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Yeah, exactly the lower cap gains rate was never intended to promote hiring. That has nothing to do with capital gains.
 
PhDeac said:
How does the lower rate do that? Seems like it does the exact opposite. A lower capital gains rate makes it more reasonable to just invest money than take a risk of creating jobs.
Click to expand...

A company issuing an IPO is usually doing so to raise large-scale capital for massive expansion and job creation. Taxing LTCGs at lower rates encourages everyday people to invest in those companies and hold the stock to provide that capital. The issue is that, after that IPO, the stock trading generally becomes disconnected from the company's cash and is just grown-up baseball cards. But the preferential rate for capital concept was created when people held stock for much longer periods, before you could just hop on your computer and flip a few dozen stocks in a matter of minutes while still in your drawers.
 
SkyDivingDeacon said:
I haven't bothered reading most of the posts so far so not sure if it's mentioned or not, but most proponents of a higher capital gains tax fail to take into account one very important piece of information: The money being taxed at applicable capital gains rates has already been taxed at the federal, state and municipal rates before being invested and taxed again (obviously if no state or municipal tax in state of domicile then doesn't apply). People act like capital gains rates are too low and that 'so and so' hasn't been paying a high enough tax rate and I find that logic to be flawed because they had to have been taxed already at multiple levels and brackets before being taxed at a capital gains rate.

Think about it, before that money can go in your pocket and get sent to a financial institution where, heaven forbid, you make the ghastly decision to invest your money and make a profit you've already been taxed to death. Federal, state, FICA, FUTA, etc... Additionally, the company(ies) that you're investing in is/are run by people that are being taxed at those same levels (more than likely at higher rates) and then, corporations are taxed when they produce revenues, and then are effectively taxed yet again when/if they issue a dividend. You as an investor, then get taxed on said dividend and are also taxed on any growth that you realize by way of said company being a good investment. Does that really seem efficient? The book 'The Fairest of Them All' lays out some really interesting points regardless of your own political association/beliefs but aside from all of that, a 20% capital gains rate is significantly higher than most other tax payer's effective rates anyhow. Sure, 20% sounds like a low bracket, but it's not bracketed; it's an effective rate!

The fact of the matter comes down to whether you think your tax dollars are being used efficiently by a governing body to solve problems that need to be solved and that you and your community are affected by and care about. My inclination is that our regulatory bodies and government entities are extremely inefficient and would go bankrupt in private enterprise without the guarantee of a steady stream of tax collections. Thus, I can think of no better waste of money than increasing taxes for the sake of increasing revenue to the federal government to go to waste.

My only distaste is for bullshit moves to put money offshore or for corporations to use 'aggressive tax' techniques to skirt the appropriate amount of tax that they have due. But raising taxes on small business owners and working individuals when we nearly 70% of our GDP comes from consumer purchases? Sure, that's a great plan...
Click to expand...

The dividend rate and the capital gain rate are two different things, even though they are currently taxed at the same numerical rate.
 
PhDeac said:
How does the lower rate do that? Seems like it does the exact opposite. A lower capital gains rate makes it more reasonable to just invest money than take a risk of creating jobs.
Click to expand...

You are investing in a company that in theory should be using that capital to create jobs.
 
As the name suggests, you are only paying tax on the gains. Not the amount you initially invested.
 
Liquid Karma said:
You are investing in a company that in theory should be using that capital to create jobs.
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If the goal is to create jobs, why not make it easier for someone to directly create jobs rather than making it easier for someone to hope somebody else will use their money to create jobs?

And what keeps the investee from just investing that capital and sitting on the capital gains instead of creating a job?
 
2&2 Slider To Leyritz said:
A company issuing an IPO is usually doing so to raise large-scale capital for massive expansion and job creation. Taxing LTCGs at lower rates encourages everyday people to invest in those companies and hold the stock to provide that capital. The issue is that, after that IPO, the stock trading generally becomes disconnected from the company's cash and is just grown-up baseball cards. But the preferential rate for capital concept was created when people held stock for much longer periods, before you could just hop on your computer and flip a few dozen stocks in a matter of minutes while still in your drawers.
Click to expand...

Agree with this completely. There should be delineation between IPOs/start-ups/non-publicly traded stock vs. some bro on E*Trade holding Apple stock for 366 days.
 
PhDeac said:
If the goal is to create jobs, why not make it easier for someone to directly create jobs rather than making it easier for someone to hope somebody else will use their money to create jobs?
Click to expand...

That same LTCG rate is applicable to small business stock also. So if you grow a small business and sell the stock, you get that same treatment (or, if you sell substantially all the assets of the business, you can make an election whereby the asset sale is basically treated as a stock sale so you get the same advantageous rate).
 
PhDeac said:
If the goal is to create jobs, why not make it easier for someone to directly create jobs rather than making it easier for someone to hope somebody else will use their money to create jobs?

And what keeps the investee from just investing that capital and sitting on the capital gains instead of creating a job?
Click to expand...

Because lots of people with capital don't have the capability to just add jobs. The goal is for the capital to find its way to someone that wants to deploy it into some job creating endeavor.

Not sure that I understand your second question.
 
PhDeac said:
We've got to figure out how to make job creation a better investment than the many other ways someone can spend their money.
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To be fair, some of that problem has been bringing India and China into the world economy (or American Empire if you want to be cynical). They represent 37% of the global population and we've at least doubled the "free" trading population. There have been lots of issues as a result, especially jobs.

That said, 17 years later they've both hit economic walls and the job drain has actually gone neutral and will reverse. IMO those trends are all part of a natural evolution of global economics and pulling people globally out of subsistence living.

The other part of the problem though is "jobs = environmental footprint" and are the product of corporations. The predominant US dogma is....corporations are bad, and anything with an environmental footprint must be stopped. Progressives work tirelessly to stop both. Why would investment dollars flow in that direction given the strong political headwinds they face, and with good alternatives globally?
 
SkyDivingDeacon said:
Yeah, exactly the lower cap gains rate was never intended to promote hiring. That has nothing to do with capital gains.
Click to expand...
Huh? Lower cap gains rates was intended to open up investment money that would presumably invest in the US....meaning jobs. The most recent drop was in response to economic problems we had in 2001-2002.
 
bmoneydeac said:
Because lots of people with capital don't have the capability to just add jobs. The goal is for the capital to find its way to someone that wants to deploy it into some job creating endeavor.

Not sure that I understand your second question.
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The second question is basically what keeps people with the capability to add jobs from just investing it instead of creating jobs.
 
Yeah, assuming a company is run reasonably well, its internal profit margin is generally going to be higher than an average market return.
 
PhDeac said:
The second question is basically what keeps people with the capability to add jobs from just investing it instead of creating jobs.
Click to expand...

People who create a business tend to be interested in growing that business.
 
SkinsNDeacs said:
Taxing capital gains seems like something that has fairly wide bi-partisan support. Hell...it was basically the foundation of Mitt Romney's tax plan (if you read between the lines). Why has it not happened?
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Follow the money.
 
pourdeac said:
To be fair, some of that problem has been bringing India and China into the world economy (or American Empire if you want to be cynical). They represent 37% of the global population and we've at least doubled the "free" trading population. There have been lots of issues as a result, especially jobs.

That said, 17 years later they've both hit economic walls and the job drain has actually gone neutral and will reverse. IMO those trends are all part of a natural evolution of global economics and pulling people globally out of subsistence living.

The other part of the problem though is "jobs = environmental footprint" and are the product of corporations. The predominant US dogma is....corporations are bad, and anything with an environmental footprint must be stopped. Progressives work tirelessly to stop both. Why would investment dollars flow in that direction given the strong political headwinds they face, and with good alternatives globally?
Click to expand...

Corporations are only bad in the sense that they are taking government handouts and reducing their workforce at a time when they are making more money than ever.

As for the environmental regulations, see the recent water crisis in WV. They had to contact the CDC to have any idea about the harmful effects of the chemical, and even then their analysis was based off of very limited research. Yet our government thinks that it is a good idea to let companies pump unknown chemicals in the ground in the name of trade secrets. Short term money trumps long term responsibility. The WV company has already filed for bankruptcy. Doesn't matter, got paid. BP is trying to get out of much of their settlement from the gulf spill by out lawyering the poor southern folk.
 
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