A question about Capitol Gains taxes

[werepossum]

So investment decisions are now made after gains are already achieved? Hmm.. interesting theory you got there.

Simple example:

I have $10,000 to invest today. I want a 20% yield over 5 years, excluding inflation.

With no capital gains, I need my investment to yield a flat 20%.

With 15% capital gains, I need my investment to yield just about 25%, or a 25% increase over my first investment.

In either case, you are risking the same loss. Capital gains taxes degrade your upside, while your downside risk remains unchanged. The government maintains a percentage of the reward, while you retain 100% of the risk. Keep shifting that ratio in the governments favor, and you reduce the amount of capital that is willing to participate.

Surely you can understand that.

Exactly right. I've tried to say that several times, but you did so excellently, thanks. Marginal investments, meaning not only those with low returns, but also risky ventures like start-ups with a higher risk of failure, are much less likely to get funded with higher capital gains tax rates. That might be one reason for government to hike capital gains tax rates - to drive capital into government bonds. 😀

Progressives insist that higher tax rates are a win-win proposition, but very few things in life are entirely one-sided. I can make a moral case for taxing the man who works for a living at no higher a rate than the man whose money works for his living, but it's a fact of life that with higher capital gains tax rates, less capital will be invested. Even the simple assertion that higher capital gains tax rates will bring more revenue to government isn't necessarily true, there are a lot of variables to even make an educated guess.

 

[dank69]

So investment decisions are now made after gains are already achieved? Hmm.. interesting theory you got there.

Simple example:

I have $10,000 to invest today. I want a 20% yield over 5 years, excluding inflation.

With no capital gains, I need my investment to yield a flat 20%.

With 15% capital gains, I need my investment to yield just about 25%, or a 25% increase over my first investment.

In either case, you are risking the same loss. Capital gains taxes degrade your upside, while your downside risk remains unchanged. The government maintains a percentage of the reward, while you retain 100% of the risk. Keep shifting that ratio in the governments favor, and you reduce the amount of capital that is willing to participate.

Surely you can understand that.

The point is that the investor is going to invest. Maybe he might invest in less risky options to offset the smaller net gains, but he is still going to invest. He is not going to just stuff his money away because he might have to pay 5-10% more on any gains he makes.

 

[ohnoes]

So investment decisions are now made after gains are already achieved? Hmm.. interesting theory you got there.

Simple example:

I have $10,000 to invest today. I want a 20% yield over 5 years, excluding inflation.

With no capital gains, I need my investment to yield a flat 20%.

With 15% capital gains, I need my investment to yield just about 25%, or a 25% increase over my first investment.

In either case, you are risking the same loss. Capital gains taxes degrade your upside, while your downside risk remains unchanged. The government maintains a percentage of the reward, while you retain 100% of the risk. Keep shifting that ratio in the governments favor, and you reduce the amount of capital that is willing to participate.

Surely you can understand that.

The rate of return that you're talking about is governed by the underlying risk of the investment (beta). Depending on your risk appetite, you would invest in different vehicles. Cap gains taxes would affect the entire landscape, so if your risk appetite is for something that's 20%, you'd still invest in the 20% even if taxes go up.

You could move to the 25% investment, but you'd be taking on more risk. But if you're comfortable with that, then why not just do the 25% investment from the start?

 

[Craig234]

Define progressive. Is that the whole Democratic party or is there a progressive caucus?

It's absolutely not the 'whole Democratic Party'. There is a "progressive caucus".

It was co-founded by Bernie Sanders when he was in the House.

It's one of the major wings - the only very organized Democratic political faction, really. They are Democrats (with a notable exception of independent Sanders), but not 'Democrats first'. The other Democrats are more mixed, some 'blue dogs' (who got wiped out in 2010), some 'corporatists' (but there's no 'corporatist caucus'), some are 'hawks', others of various flavors.

I'll be very frank with you when I say that I don't even waste my time having real life conversations with people when they start throwing out "right wing", "left wing", "bleeding heart liberals", and other talk show host names that are just trying to devalue a person's opinion. As far as I'm concerned both the Democratic Party and the Republican party as a whole are garbage. If you want to discuss a particular representative and his ideas for reform I'm all ears. If there is a caucus or panel that is trying to fix things the way you would like by all means say so. You seem to be very extreme in your position and not open for discussion so I'm not sure we can even get anywhere - but I'll try.

I'm partly sympathetic to what you're saying, and party not. I agree, ultimately, the party issues are not the point - it's the principles, the policies. But the parties and factions can tend to be about those things, or opposed to them. As a practical matter, organizing has power - both for you and opposed to you, and our political system does have these factions. You can't take a 'Tea Party Republican' and expect to just look at him as an individual and find 'surprise, his views aren't anything like the rest f the tea party!' And as factions, the mere registration of these people strengthens one agenda over another.

If you vote for a Democrat without looking at the person, you are voting for the Democrats to control the House, for Speaker Pelosi, and for the agenda they have. By voting against the Democrat, you are voting for the Republicans to control the House and for the agenda they have. That can far outweigh any difference between the two people running.

We can discuss some things, but calling 'both parties garbage' isn't the best start. That's 'guy with a beer in his pickup' level ranting, not discussion.

I'm very sympathetic to being disgusted by a lot with the parties, but that's not going to get you very far. Just a guy who throws away his vote on Mickey Mouse.

I find the only political caucus who has largely opposed the corporatist corruption - the corruption I think is the main corruption - of our political system is the progressive faction of the Democrats. The corporatists have pretty much bought out the Republicans - some knowingly, some indirectly, some not even aware of it who have just 'drunk the corporatist ideological kool-aid' - and they have bought a lot of the Democratic Party also. Clinton turned into a corporatist; Obama as well.

It's my opinion that the people need to get together in opposition to this corporatist corruption - that being split by this 'right left' and other divicisions plays into their hands. That's a lot of their basic strategy, divide and conquer, get people hating each other for less important issues, not uniting over the corruption. It's worked.

 

[PeshakJang]

The rate of return that you're talking about is governed by the underlying risk of the investment (beta). Depending on your risk appetite, you would invest in different vehicles. Cap gains taxes would affect the entire landscape, so if your risk appetite is for something that's 20%, you'd still invest in the 20% even if taxes go up.

You could move to the 25% investment, but you'd be taking on more risk. But if you're comfortable with that, then why not just do the 25% investment from the start?

If my risk tolerance is such that the returns adjusted for capital gains are too low, I will take my money elsewhere. Say, another country. That's the point.

This whole argument boils down to that. Yeah, if every country in the world had a 90% capital gains tax, everyone would be on a level field. You can't claim that cap gains affects the entire market, because the entire market is the whole world.

 

[Lithium381]

Sounds like picking a door on The Price is Right, but you know what's behind each door:
You've invested $1,000,000.
Behind door number one: You earn 500,000 on your investments! Gubment takes 15% netting you 425,000!
Behind door number two: You loose everything. You get to write off $3k.
Behind door number three: You earn 500,000 on your investments, but in another country. You net 500,000!

Essentially, the government takes NO risk, but reaps the benefits of your venture? Weak sauce. I retract my previous statement.

 

[Craig234]

Essentially, the government takes NO risk, but reaps the benefits of your venture? Weak sauce. I retract my previous statement.

Yes, instead of taxing something, why don't they tax the lack of something!

Instead of taxing casino winnings, they should tax a lack of winnings!

 

[RocksteadyDotNet]

Sounds like picking a door on The Price is Right, but you know what's behind each door:
You've invested $1,000,000.
Behind door number one: You earn 500,000 on your investments! Gubment takes 15% netting you 425,000!
Behind door number two: You loose everything. You get to write off $3k.
Behind door number three: You earn 500,000 on your investments, but in another country. You net 500,000!

Essentially, the government takes NO risk, but reaps the benefits of your venture? Weak sauce. I retract my previous statement.

ROFL.

Yeah, the government did nothing to help you make money.

Except paying for the army that keeps your assets safe.
And the roads the people drive on the buy your shit.
And the SS payments people use to buy your shit.
And the police that protect your shit.
Etc
etc
etc

All you Ayn Rand wannabes never seem to understand that to have a successful private sector relys on having a stable government and population. That means welfare checks and cops people.

See how well your investment is doing when there are gangs roaming the streets.

Go start a business in third world county where no one pays tax, see how well you do.

 

[ohnoes]

If my risk tolerance is such that the returns adjusted for capital gains are too low, I will take my money elsewhere. Say, another country. That's the point.

This whole argument boils down to that. Yeah, if every country in the world had a 90% capital gains tax, everyone would be on a level field. You can't claim that cap gains affects the entire market, because the entire market is the whole world.

And when you repatriate the money, it'll be taxed.

 

[PeshakJang]

And when you repatriate the money, it'll be taxed.

Which, surprise surprise, people aren't doing.

 

[PeshakJang]

Which, surprise surprise, people aren't doing.

ROFL.

Yeah, the government did nothing to help you make money.

Except paying for the army that keeps your assets safe.
And the roads the people drive on the buy your shit.
And the SS payments people use to buy your shit.
And the police that protect your shit.
Etc
etc
etc

All you Ayn Rand wannabes never seem to understand that to have a successful private sector relys on having a stable government and population. That means welfare checks and cops people.

See how well your investment is doing when there are gangs roaming the streets.

Go start a business in third world county where no one pays tax, see how well you do.

Nobody is saying taxes aren't needed, I'm just pointing out the simple fact (that's what it is), that when you tax something, you get less of it.

If you want less investment in America, raise the cost of doing so.

As Obama said... It's just simple math.

And despite what he and his followers claim, it is nothing BUT class warfare. If not, you should easily be able to lay out the expected revenues from changing the tax rate, compared to the expected economic results, and show how it is a net benefit. That is not the case, though, as nobody on the left will EVER say how much money this will raise, what will be done with it, or what effects it will have. The answer is ALWAYS.... "fair share!"

 

[dank69]

Nobody is saying taxes aren't needed, I'm just pointing out the simple fact (that's what it is), that when you tax something, you get less of it.

If you want less investment in America, raise the cost of doing so.

As Obama said... It's just simple math.

Simple fact is not so simple, as much as you may think it is. There are many other factors that influence how peple invest. If it was simple, raising taxes would always decrease revenue and lowering taxes would always increase revenue. Then it would also follow that lowering taxes to zero would produce the most revenue, which is obvious horse shit. Bush tax cuts have not increased revenue, so what happened there? Other factors. Just like other factors played a part in revenues increasing around the same time that taxes were lowered in the past.

And despite what he and his followers claim, it is nothing BUT class warfare. If not, you should easily be able to lay out the expected revenues from changing the tax rate, compared to the expected economic results, and show how it is a net benefit. That is not the case, though, as nobody on the left will EVER say how much money this will raise, what will be done with it, or what effects it will have. The answer is ALWAYS.... "fair share!"

I do not like the 'fair share' argument. Fair is an extremely subjective term and by default renders someone's argument invalid.

 

[soccerballtux]

It does, and in a very clear and concise manner. Thanks!

If that's the case then i don't think i should be a problem to put the LTCGT @ 25% or so. 15% is too low. But then again we're having that discussion in three different threads right now.....

it is ordinarily much higher. When bush tax cuts expire it will go back to like 33% if I recall.

I'm more in favor of making it graduated based on income. People making below $100k shouldn't be taxed at all on it. You want to encourage them to be saving money and investing.

 

[Ausm]

I see you spewing this kind of nonsense in multiple threads. You're bitter at the world.

Not bitter just pointing out reality. Just look at what the Repugs are doing in my state carrying out the Koch bros/ALEC agenda.

 

[Lithium381]

Not bitter just pointing out reality. Just look at what the Repugs are doing in my state carrying out the Koch bros/ALEC agenda.

Just look at the model of the libs in California and Illinois....

 

[Craig234]

Just look at the model of the libs in California and Illinois....

What about CA?

We're doing a hell of a lot better than Koch country, and our problems are pretty much caused by the Republican side of our government, given 2/3 approvals needed.

Luckily, that was changed for budgets this year, but not taxes, so that'll help some.

 

[Ausm]

Just look at the model of the libs in California and Illinois....

Crack kills

 

[Matt1970]

The point is that the investor is going to invest. Maybe he might invest in less risky options to offset the smaller net gains, but he is still going to invest. He is not going to just stuff his money away because he might have to pay 5-10% more on any gains he makes.

Keep telling yourself that.

Another good thing of lower long term capital gains taxes is people don't have to sell some of their investments to cover the taxes at the end of the year.