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Pretty much everything is double taxed, so it's kind of moot how important it is that capital gains are.
Say you have $100 left after Sam taxes your paycheck. You can either choose to consume it and pay 0% or invest it in the hopes of future gains on which you will pay 15%. Now, let's look at what you're buying. The consumption item is mostly a cost of business write-off so you're not paying taxes on most of it. A $100 item probably includes $2 of tax expense passed along to you (10% ROI, 20% effective tax rate). A stock is valued at $100 based on expected future earnings on which the company will pay 20%. Say the company earns $10 a year per share), of which $8 it keeps (EPS). That means that P/E ratio (price:earnings) is 12.5:1. If the company kept all $10, it would be worth $125. That's not the side of "double taxation" conservatives are complaining about, but it is why changes to corporate tax structure are so sensitive. If all of a sudden tomorrow corporate income taxes were done away with, the people who own stocks would see a 25% windfall. Raising the corporate tax would have the same effect of destroying shareholder value. Yes, the 1% would be the most effected, but most of us have pensions, 401k/403b, and/or IRA accounts of some form.
The double taxation part usually refers to the 15% capital gains only. I'd argue that it's entirely irrelevant that it's double taxed, because the price you paid already reflects the tax ($100 for the stock instead of $125). Still, the 15% has its effect. Going to the no tax scenario, the stock is priced at $125 because you have to pay 15% on the capital gains. You're right now valuing future earnings at 85% of their full value because that's all you get to keep. If you were valuing the full amount of the future earnings, you'd be willing to pay $147 for the same stock. Thus taxes have "destroyed" $47 dollars of the stocks value. Of course, the same windfall profit/loss would occur if the capital gains tax were to be raised or lowered.
As I said, I feel the whole concept is meaningless. The prices already reflect the taxation. You're really not "discouraging" people from investing and pointing them to consumption which is, on its face, the argument that conservatives are making. Actually, you're doing the opposite as everyone has access to investment vehicles to use pretax dollars in. Those are mostly middle class sized.... a 1% is going to max out an IRA in a hurry.
That is why there is the annuity market which is basically a ROTH wrapped in insurance. They pay out loans and put leans against the unrealized gains.
Thanks. But its often the same unearned dollar since the capital and labor around assets is what created that dollar, the whole dollar. We should shift tax burden off that? There is no burden when your land doubles in value because you bribe the politician to send water into the San Joaquin valley. That made many an insider millionaire doing absolutely nothing(but destroying the Owen's valley and leaving it a salt flat).
I have, over and over again. Assets and capital should not be classified together at all for tax treatment. There should be land value taxes, monopoly taxes, not taxes on capital. The current corporate income tax punishes capital rich but asset poor companies. It rewards asset rich and capital poor companies that spend time sabotaging their competitor. However the reality of the situation is that so much wealth is contained in assets rather than capital. Capital is in constant depreciation, not to mention R&D overhead. That is why so many people were suckered into the tech bubble. Those are capital rich, asset poor companies. Wealthy people know to rotate that value into assets.
Speaking of that, suppose I held the domain name books.com as an Internet domain name speculator. Since I am so productive, I should not have to pay a fee? I should get every penny I earned with good tax treatment and profits selling to Barnes and Noble? That is what I call crapital gains, with fatty blood suckers screaming for more meat pie and the unfairness of too thin a cut of fatty pork.
I am an insider to this process. I worked for companies that became financial companies. That is where all their profits came from. That is because debt became the best business to get into. Insurance as well since
GE is now making money in the FIRE sector as its most profitable arm
Sears Roebuck?
1. All State spin off
2. Discover card spin off.
3. Last profitable division sold to City Group was credit.
Big 3 auto maker cash cows? FIRE sector like GMAC.
Its all rent since credit comes from thin air.
When its an economic rent that by definition was earned by someone else improving the area around you, you should get very little of it.
Split off capital and economic rents . Labor capital should have no tax.
Interesting perspective. I will have to think about it, I am not sure how I feel about this.
Interesting perspective. I will have to think about it, I am not sure how I feel about this.
It is an interesting perspective, and I am merely a student of it myself. However after years of reading contradictory babble, I believe I have found it, the long lost third input not made by human hands. Who collects it?
One thing to keep in mind is Ricardo's theory was modeled on barter. One needs to see the financial overhangs, of which now there are many, and its the chief beneficiary of economic rent.
This was where classical economics was headed. Just as Henry George refined Ricardo, and we finally had the crowning jewel on economic thought, it was crushed in the Gilded age by the robber barons.
Then came Marx, the Keynesians, Monetarists and Neo-Liberalism, the dark times of junk economics. We are in a new dark age.
It is an interesting perspective, and I am merely a student of it myself. However after years of reading contradictory babble, I believe I have found it. The long lost third input, not made by human hands. Who collects it?
One thing to keep in mind is Ricardo's theory was modeled on barter. One needs to see the financial overhangs, of which now there are many.
This was where classical economics was headed. Just as Henry George refined Ricardo, and we finally had the crowning jewel on economic thought, it was crushed in the Gilded age by the robber barons.
Then came Marx, the Keynesians, Monetarists and Neo-Liberalism, the dark times of junk economics. We are in a new dark age.
I understand your point. I am not sure whether I agree or not yet. Do you have links to any research papers on it? I have always been a big fan of a flat consumption tax to replace all other action. The key is to pick one method of economic growth and tax only one. Your options are they three classic ways to measure economic growth: tax production, consumption, or investment. Please only pick one though. The net economic impact on society as a whole will be the same, regardless of which is picked. The issue of problems in taxation becomes apparent when we begin taxing multiple measures of growth.
How come Conservatives always complain about a double taxation on Capital Gains tax..I dont get it. Is there ordinary income along with 15% cap gains.?
The most obvious reason deals with dividends and C corporations. Basically a C corporation is subject to corporate income tax. Then if said C corporations wants to declare a dividend and pass those profits on to shareholders we share holders pay a second tax on those profits in the form of a personal capital gains tax on the dividends we recieve. Personally I don't have a problem with this, but some Conservatives do.
I understand your point. I am not sure whether I agree or not yet. Do you have links to any research papers on it? I have always been a big fan of a flat consumption tax to replace all other action. The key is to pick one method of economic growth and tax only one. Your options are they three classic ways to measure economic growth: tax production, consumption, or investment. Please only pick one though. The net economic impact on society as a whole will be the same, regardless of which is picked. The issue of problems in taxation becomes apparent when we begin taxing multiple measures of growth.
This pretty much addresses this as well.
Here are two articles. I think Hudson influenced Eric Janszen over at itulip too. Janszen is a good pragmatist for your personal wealth in all of this.
The most obvious reason deals with dividends and C corporations. Basically a C corporation is subject to corporate income tax. Then if said C corporations wants to declare a dividend and pass those profits on to shareholders we share holders pay a second tax on those profits in the form of a personal capital gains tax on the dividends we recieve. Personally I don't have a problem with this, but some Conservatives do.
So we are indirectly paying the co's corporate income tax as well as a shareholder?
So we are indirectly paying the co's corporate income tax as well as a shareholder?
More or less since corporations are owned by their shareholders and dividends (which are essentially distributions of profits to shareholders) are taxed separately from corporate income.
I purchased a home in 2009 and put 40 % down that I received from the sale of a home that I resided in for two years and sold in 2007. I never lived in the home and rented it out for 6 years. I recently sold it for 10,000 more than I purchased it for. I had heard that Capital gains only needs to be paid on the increase which is 10,000. Also heard that the increase had to be re-invested within 3 months of the sale of the rental home. I did purchase a lot for 21,000 within 3 months of that sale.
Just curious if what I heard is correct. thank you for any input. I do have a call into my tax person to ask these questions also.
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Capital Gains on a rental
