Capital Gains Tax

[Mouldsie]

I was listening to some guy on the radio talk about capital gains taxes and how he thinks they shouldn't be raised but lowered b/c a lower rate increases employment or something. I didn't really buy what he was selling, but it got me thinking.... I'm curious what the BZ brain-trust thinks about this.

Wouldn't it be wise to have a regressive tax rate on Capital Gains determined by length of the investment?

Example:
If the investment is held for less than 1 year = tax at regular income tax rate
1-2 years = 30% Tax
2-3 years = 25%
3-4 years = 20%
4-5 years = 15%
6-7 years = 10%
7+ Years = 5%

Or you can lower the rate every 2 years, or gradually scale it back to a higher number than 5%, make the highest rate only on 6 month investments, get to 20% quicker etc
I'm not worried about the numbers but moreso want to hear opinions on the concept.


To me it would seem that a system like the one above would encourage more responsible investing and more importantly it would foster innovation and perhaps healthier employment practices. A corporation works to please it's shareholders and in today's age I think that sometimes means CEO's make decisions that look good for the next quarterly report rather than what is good for the long term health and growth of the company (in part b/c he may not be around to see it). Now, in my scenario if shareholders know that they can avoid a heavier tax by waiting to sell their stock wouldn't they care less about the yearly bottom line and more about the company's long term positioning? If that's the case, wouldn't a company put some money into R&D and hold onto some of it's talented employees as opposed to some of the more economically destructive behaviors we've seen lately?

Tell me why I'm an idiot and then let's see if we can make this thing work. I'm not concerned about whether some traders would freak out, I'm concerned about being the best country we can be on the whole.

Then we'll give our proposal to Obama when he goes on Reddit.

[ICRockets]

On the surface I like it a lot. I imagine the numbers would need tweaking in order to work for the investors as well as for the government vis a vis tax revenue, but your logic seems sound. Granted, I probably know less than you do on the topic, so my opinion probably means nothing.

[Mouldsie]

I don't know nearly as much about the specifics as guys like jimmi, DB, gebobs, even marcala

My grandfather is a successful broker but I don't yet earn enough to invest a lot myself and he handles/handled my account anyway. I went to school for business but they don't teach you much that's real world applicable in undergrad. I do tend to have a good grasp of the big picture in most situation though and my thinking tends to lead me towards that end. I'd be a better CEO than salesman.

There is already a long term (1 year+) and short term rate (<1 yr) but I dont think that's comprehensive enough.

[ICRockets]

I don't know nearly as much about the specifics as guys like marcala

Truth. That dude has it all figured out. I could learn so much from him.

For example, I've already learned never to do bath salts. Keep 'em coming, Marc!

[Marcala12]

Truth. That dude has it all figured out. I could learn so much from him.

For example, I've already learned never to do bath salts. Keep 'em coming, Marc!

some people read with an open mind, some people let their bias and hatred influence their judgments. which group do you belong to?

[ICRockets]

some people read with an open mind, some people let their bias and hatred influence their judgments. which group do you belong to?

The group that thinks you're funny and stupid and wants you to keep talking so I can laugh at you more.

[Marcala12]

I have maintained my positions on the tax system for quite a while:

1) raise income taxes by 6-8% on actual millionaires. They call it a millionaire tax and then they want to raise it on people who make 250k which isn't a lot of money in the cities that have the most 250k+ earners. So as long as they stick to the actual "millionaire" term," then they can go for it. This separates me from any republican (so does the fact that i'm fine with gay marriage, pro-choice, and that I don't believe in God...but whose counting?). I realize that this amount of money doesn't actually add up to a being a difference maker, however it won't hurt and it would help get the ball rolling on making some bipartisan agreements.

2) Keep Cap Gains at 15% OR let us write off 100% of our losses. Right now we can only write off 3k per year in losses, and that is basically a 0 to anyone who has real investment resources. So if I invest 1 mil. and make 10% in the first year, I currently pay 15k in cap gains taxes for an after tax gain of 85k. But if my investment lost 9%, I can only write off 3k, so I'd basically be down 87k. Again this is the current system that I'm actually very happy with. You can imagine what an uphill battle it would be if cap gains taxes are raised to 30%; you'd basically have to be a perfect investor to actually be able to make money. With real estate and equities being as poor and as volatile as they've been, do we need to make it even worse? I think I'd just be better off taking all of my money and throwing it into muni bonds. Investors all around the world will be demotivated to invest in the U.S. Do you think that will be good for jobs and the economy?


3) Eliminate all big corp. tax loopholes. This is not a D or R issue; the D's and R's have both f'd us in the a with this and you all know it. I'm talking about the freebies that the biggest corp's in the country get that the small businesses don't have the luxury of seeing. This stuff is garbage and we need to level out the playing field. GE and Exxon Mobil; these MF's get away with incomprehensible s**T and it needs to stop.

While the system the OP talked about would be better and more acceptable than paying 30% in cap gains, it's still unnecessary. We need to promote investment in this country, short or long term. You shouldn't get heavily penalized for moving money around or for changing your mind.

- - - Updated - - -

The group that thinks you're funny and stupid and wants you to keep talking so I can laugh at you more.

you don't have any money invested, so why are you chiming in on this thread bud? 15% and 30% of 0 = the same amount...so you don't have a horse in this race. if this was a thread about cheeseburgers and getting heart failure then you would be an authority and I'd be the one reading and taking notes. Investing and cap gains = not a thread for IC Cheeseburgers and heart failure = thread for IC

[ICRockets]

2) Keep Cap Gains at 15% OR let us write off 100% of our losses. Right now we can only write off 3k per year in losses, and that is basically a 0 to anyone who has real investment resources. So if I invest 1 mil. and make 10% in the first year, I currently pay 15k in cap gains taxes for an after tax gain of 85k. But if my investment lost 9%, I can only write off 3k, so I'd basically be down 87k.

What would writing off 100% of your losses end up translating to in terms of money you see back? Because what this sounds to me like is a personal bailout for everybody who loses money when investing. If you get to write off $90,000 on your taxes if you make a bad investment, what's to stop everyone from just throwing all of their money into whatever the hell they want and counting on the government to take care of them?

This is a serious question, I don't know how this all works.

[Marcala12]

What would writing off 100% of your losses end up translating to in terms of money you see back? Because what this sounds to me like is a personal bailout for everybody who loses money when investing. If you get to write off $90,000 on your taxes if you make a bad investment, what's to stop everyone from just throwing all of their money into whatever the hell they want and counting on the government to take care of them?

This is a serious question, I don't know how this all works.

listen all jokes aside, I'll answer you. A write off is not a bailout. the government does not hand you any money. You just get to use it to balance out gains so you don't pay taxes on those gains. If you lose all of your money in an investment you're s**t out of luck and that's the way it should be. But if you pay a ton of taxes on your good investments shouldn't you get some tax relief on your bad ones so that you're motivated to keep investing???
I wasn't actually being serious about writing off 100% of losses, that's not at all realistic, I'm just trying to illustrate the point that cap gains taxes need to stay right where they've been at 15%, although it appears as if that is about to come to a screeching halt.

[gameboy]

What would writing off 100% of your losses end up translating to in terms of money you see back? Because what this sounds to me like is a personal bailout for everybody who loses money when investing. If you get to write off $90,000 on your taxes if you make a bad investment, what's to stop everyone from just throwing all of their money into whatever the hell they want and counting on the government to take care of them?

This is a serious question, I don't know how this all works.

I think you are misinterpreting the phrase "writing off."

It means taking a deduction. Any "write off," only benefits the taxpayer at his marginal tax bracket.
In other words, If you are in the 28% tax bracket on your last dollar earned, (remember, tax rates vary as income increases), the in your wallet amount that the deduction would provide would only be 28% of your loss. The other 72% is a loss.
Maybe the mortgage deduction would be a better item to illustrate. If one pays $10k in mortgage interest in a year, he doesn't get that 10k back from the gov. He gets his marginal tax rate back, and never recovers the amount represented by 100% of interest expense- that %.

To the thread question, on a philosophical basis, I am against anything the tax code does that influences behavior in any other area, and the tax code definitely does that now in the investment arena. Further complicating it would cause increased behavior effects. I think it's just fine at the two class category of cap gains.

Regarding the suggestion that one be allowed to deduct 100% of cap losses per year, I don't think that is a good idea. The gov needs to have some degree of clarity on how much money it can take in per year, and in rough market years, it would be devastating. Additionally, in that discussion, it was not mentioned that the $3000 limit is after accounting for gains, so there is a possiblility that all of the losses could be claimed, if there was offsetting gains.
When people use the phrase "write off," there seems to be some who misunderstand what it means. A loss is a loss.

[Mouldsie]

My numbers are a bit higher than I meant.... I like hearing these responses so far.