'Cuz the times, they are a changin'Follow

Didn't I just explain the difference between income and capital gains? They are two completely different types of economic activities and are subject to two different taxes, with two different rates. The sales tax in your area is probably higher than the property tax rate, but it would be ridiculous to claim that by buying a home instead of buying stuff in the stores you're using a loophole to avoid paying taxes. Now, getting your home declared an historical site so you can take advantage of a tax deduction for maintaining said site *is* a loophole.


When we talk about tax loopholes, we're talking about things you do within a single type of tax which allows you to pay less of that specific tax.


I'm honestly beginning to suspect you have no clue what capital gains are. Which sorta hinders any discussion.

There's a lot of things I don't understand, which is why I ask questions.



It's not, but since that's not your point, it's not really relevant.

Edited, Sep 21st 2011 7:38pm by someproteinguy

I'd actually venture to say that a great many of those 18% don't make enough earnings off their stock options for it to matter. If you've got $10,000 in stock stashed away and your dividends for the year are five hundred dollars, and you have to pay $100 in taxes because of that and an extra $50 of taxes would hurt your lifestyle, you've got bigger problems.

My father in law, great fool he is, had $100K in GM stock. GM undergoing debt restructuring means he lost 90% of its value in a few short weeks. It's since climbed back up to about half its initial value, but he won't be paying taxes on that for a long, long time, since it's still considered a loss.

I believe the majority of folks with large amounts of stock would rather their stock do spectacularly and have to eat a larger portion in taxes than they would have their stock do poorly so they can pay lower taxes.

FTFY

By that argument we should raise the income tax rate on poor people since it wont cost them much either. X% more in tax is X% more. It's relative to the amount of money you have invested, so it's always going to hurt you the same amount relatively speaking.



Sure. And when he does make a gain off that investment, do you think that he should be taxed at a higher rate? Don't you agree that this hurts him a hell of a lot more than it hurts the multi-billionaires that Obama wants us all to focus on?




And if those relationships were the choices at hand, you'd have a point. However, the reality is that lower tax rates on capital gains tends to encourage more investment which takes advantage of that rate (ie: longer term investment instead of short term "playing the market" stuff). That investment itself tends to make the longer term outlook better.

Investors already have a choice to make fast money in the market, with the trade off being that they pay higher taxes. That's why short term capital gains are taxed as income (and why income rates must always be higher than long term capital gains rates). The lower long term gain rate is designed as a reward for putting your money into something for a longer period of time. The assumption of the whole system is that longer term investments tend to actually make the whole market grow and be more stable. Since we're talking about that long term capital gains rate here (that's what Warren Buffet gets and why his tax rate is lower than his secretary's), we're already speaking specifically about those who've invested in longer term things designed to generate greater sustained market growth. Taxing that at a higher rate is simply punishing people for doing the right thing with their money.



It's just interesting to me that it seems like current Democratic party economic policy seems hell bent on doing exactly the wrong things economically. If you were to come to me and ask how to make an economy do poorly, and recover slowly, and increase its odds of getting stuck in a recession without much chance of recovery, I'd suggest a list of things which look almost exactly like what the Dems have been doing (or trying to do) for the last few years. It's amazing that they've somehow hit on this as an economic strategy and even more amazing how many people don't realize (yet) just how horrible it is.

That is a matter of perspective, if both are living at the limit of their means then a hike will affect both similarly (in accordance to income taxes). However raising the capital gains tax is completely different, while it affects both similarly, to that extent most "poor" people have no investments where as richer people do.

Raising income tax on solely the rich imo is not going to change anything. Adjusting capital gains will provide a good influx. Not only that being taxed on income earned there will encourage people to leave money in the market longer, in order to avoid a larger tax on their exit amounts. (which further assists the economy in keeping money moving through many hands.)

That is completely 100% backwards. Ok. I really do suspect that some of you don't understand how capital gains taxes work. If you buy something and then sell it within 1 year of buying it at a profit, you pay income tax on that gain. It is simply added to your income. Period. You *only* get the long term capital gain tax rate (currently 15%) if you hold that investment for at least 1 year.

The more you raise that capital gains rate the less incentive someone has to hold for a year (or more) rather than just make quick buy and sell actions on the market. Every investor is going to make decisions based on what maximizes the money that ends out in their pocket. Raising that capital gains rate means that you increase the odds that some shorter term condition will occur which will make it more worthwhile to sell something *now* even though you have to pay income tax rates on it, rather than hold it until the long term gain rate will apply.


It's math. Everything else staying the same, raising the relative capital gains tax rate will result in more short term investment and less long term investment. If we agree that we want to encourage long term more than short term, then this is exactly the wrong thing to do.

If that's the case, why not make the tax-break cut-off 5 or 10 years instead?

Or cycle it through really fast micro-trades but repackage it into long-term fund options that reap the capital gains tax rate even though they were generated via a really cool HFT engine!

...but that's not even clever, it's only another flavor of derivative.

The genius in that sh*t salad was the marketing and tranche groups, along with the underlying asset fraud.

Sidenote: exotic instrument terminology sounds pretty gay. "If someone tries to strangle your iron condor, collar a rainbow option or use a bear spread"


Edited, Sep 23rd 2011 12:48am by Timelordwho

Why would you drop your draws to the floor?

Because you want a tradeoff between market flexibility and stability. You want both types of investors. Those who buy stocks for a long haul and those who'll actively shift their money as the market shifts. Stability and flexibility. Folks who are going to buy shares in X and hold it until they retire are going to do that regardless of the tax cut-off time period. What you're looking at is providing a reason for those who will buy and sell stocks to factor taxes into the decisions they make and perhaps ride out a bad trend for a couple years rather than selling the instant a stock starts to fall.

There are a lot of factors involved, but there really are very good reasons why there is a long term capital gains tax rate, and why it must be lower than the income tax rate, and why it must be long enough to encourage longer term investment, but short enough to be an obtainable period of time.