Both? How do you figure?Originally Posted by JarodParker
Last edited by Presley Cannady; 11-06-2011 at 07:25 AM.
PH Cannady
Correlate Systems
But why do you think that this is not an extraordinarily low tax rate?
Deferring tax payments should drive taxes rate up, for the government didn't get the money earlier and had to substitute for it by lending money on which it had to pay interest during the period.
Because I didn't take the money for a year? And a year from now, my net gains may be negative?
Deferring income generally doesn't.Deferring tax payments should drive taxes rate up...
PH Cannady
Correlate Systems
Yeah, but that's an intentional (lobbied) advantage for capital investors over labour income. That's my point.
http://en.wikipedia.org/wiki/Capital..._United_States
(my emphasis)Capital gains are generally taxed at a preferential rate in comparison to ordinary income (26 U.S.C. §1(h)). This is intended to provide incentives for investors to make capital investments, to fund entrepreneurial activity, and to compensate for the effect of inflation and the corporate income tax.
The mentioned compensation isn't a good justification for those tax rates, as financial math calculations of 1st semester quality reveal (and actually, a quick look at the different tax rates shows it as well).
The effect is of course regressive, i.e. lower income groups are being disadvantaged (kinda 'trickle down economics' again).
Look at the table in that link.
The long-term capital gains tax rate is clearly regressive in comparison to the short-term one (a difference that cannot to be justified with in both cases identical corporate income tax or inflation!).
Macroeconomically it's on first sight not important which group of the population owns capital, for consumption of the different groups is another data point and owned but not consumed wealth is akin to an illusion.
But on second sight there's a huge difference, for wealth means control, means power. The concentration of wealth has many undesirable effects that are not apparent on the typical very much aggregated macroeconomic data tables.
Concentrated wealth drives up economic distortions and market failures, even lobbied (and thus usually misguided) regulation. It leads to stuff like 'privatised profit, socialised risk'.
A regressive tax system that ends up fostering wealth concentration (and that's the unquestionable macro trend in the U.S. and, sadly, for a different set of reasons also in Germany) is a poor tax system. It's perfectly fine when people express their disgust and lobby with demonstrations against wealth and power accumulation by 1 % (if not 0.1%) of the population.
Hey, look, you guys love that 53% number, and no matter how you cut it, it's the wrong number. The number is 47%, and that's an unusually high spike. Furthermore, the statement that started this ridiculous 53% thing says "pay taxes in America". It doesn't say "pay Federal taxes," it says "pay taxes". If you don't like people to respond as if you made a broad statement that contains factually incorrect subsets, then don't make broad statements that contain factually incorrect subsets.
Well, luckily, unless you're one of the banks that got bailed out, you're not being asked to cut anyone a paycheck. And if you are one of those banks, then it's very likely that you're not in the 53% oops I mean 47% anyway! But I'm going to assume that you're not a bank, because banks don't generally make forum posts.
And why are you mad at OWS anyway? "Ten years of liquidity you probably didn't deserve" doesn't really describe very much of OWS. In fact, it more accurately describes the banks that OWS is protesting.
Last edited by motorfirebox; 11-06-2011 at 03:38 PM.
Which has what to do with what?
So?Yeah, but that's an intentional (lobbied) advantage for capital investors over labour income. That's my point.
Come again?The mentioned compensation isn't a good justification for those tax rates, as financial math calculations of 1st semester quality reveal (and actually, a quick look at the different tax rates shows it as well).
How do you figure? There's a 15 to 35 percent tax rate on corporate income on top of the capital gains tax, so the effective rate is at least 30 percent.The effect is of course regressive, i.e. lower income groups are being disadvantaged (kinda 'trickle down economics' again).
I don't think "regressive" means what you think it means. You'll forgive me if I don't waste time on the superfluous abuse of jargon in the remainder of your post.The long-term capital gains tax rate is clearly regressive in comparison to the short-term one (a difference that cannot to be justified with in both cases identical corporate income tax or inflation!).
PH Cannady
Correlate Systems
Nope, it's the right one. We're talking about TARP, which is a federal expenditure. Only 53 percent of Americans pay federal taxes. Therefore, the tax dollars of those 53 percent of Americans are the only tax dollars at issue here.
Because they're a bunch of shiftless know-nothings who smell funny.And why are you mad at OWS anyway?
PH Cannady
Correlate Systems
It's kinda pointless to discuss with someone who doesn't grasp arguments.
Well, at least I turned around the primitive 'discussion' tactic of "attacking, attacking, attacking without regard for counterarguments".
I've experienced that tactic often enough from certain quarters and it feels nice to break it for once with a counterattack.
After all, you cannot win by defending only (even if the attack is totally misguided and repetitive).
There's no point in trying to convince people who -even if they understood or at least recognised arguments - are deep in cognitive dissonance trap anyway.
Such 'discussions' are at most useful to keep bystanders from buying into some nonsense, but such an indirect approach is kinda weird.
Psychologists should do some research on how to circumvent crappy discussions and how to empower rational argumentation. It would be a great service to mankind if they made progress in that field.
I truly despair for future generations of self-inflated blowhards if that's the best you can come up with. How are America's children supposed to learn to avoid engaging substantively on facts that disprove their paradigms by instead engaging in personal attacks, if you continue to set such a weak example by using transparently dismissable attempts at insult?
It's kind of pointless to discuss finance with someone whose entire "argument" boils down to "I fancy myself an economist, so jibberish."
PH Cannady
Correlate Systems
Are you a child?
PH Cannady
Correlate Systems
Missing the point, I think. Deferring the sale of investment doesn't defer the tax payment, it defers the income. You can't tax hypothetical gain on an unsold investment, because it's unrealized and there's nothing to tax.
The point of taxing gain on investments held less than a year as "income" (higher rate) and those held longer as "capital gain" (lower rate) is to create an incentive to keep capital invested longer, taxing day traders and investment-flippers at a higher rate. I don't see how that's a legislated advantage for wealth over labor in any way.
Warren Buffet does well out of it because he buys and holds, which is what the incentive is meant to persuade him to do. A dollar invested does the country more good than a dollar turned over to the government, and keeping the dollar invested does a whole lot more than the extra $.20 or so that the government would get if it's held less than a year.
Last edited by Dayuhan; 11-06-2011 at 09:51 PM.
“The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary”
H.L. Mencken
Labour income doesn't get the "incentive" despite being about 2/3 of factor input for economic output. That's a legislative distortion of the input markets.
And of course it benefits the wealthiest way out of proportion because the lower and lower middle class don't own much capital.
The U.S. lacks capital investment (last year it had not even enough for replacing the depreciated parts of the capital stock), so a policy that distorts in favour of more capital investment may be useful (which doesn't mean it's not distorting or not favouring the rich).
A reduced taxation of private investments in general is worse than a shotgun approach to the problem, though.
Capital investment in the macroeconomic meaning (the one that's lacking) is actual buying of machines, construction of factory buildings or even government's ordering of construction of highways and that kind of stuff.
Capital gains on the other hand can be (and are in great part) about the service economy or not even about any real economy at all. Even worse; afaik you may buy Brazilian stocks or state bonds and still get the 'preferential' treatment by the tax code.
The low capital gains tax rates are such a horribly inefficient tool for fostering (macro-sense) domestic capital investment that this function is 90% lie and 10% fig leaf.
That tax code is not pushing for a better economy; it's saving the rich people taxes. Being a distortion of factor input markets, it's not much else than a redistribution of income (and thus wealth) from the employed parts of the lower and lower middle class (mostly) to the upper class (and mostly to the top 0.1%).
It's a common occurrence that something looks on the surface justified by nice economic policy goals as described by politicians, lobbyists and at times Wikipedia et al - and in reality even a casual analysis by a trained economist exposes it as a distortion driven by lobbyists (=money in policy) in favour of a special interest group or more.
Germany has the same problem. A quick look at the mineral oil tax code of Germany makes me puke in an instant. I begin to swear and then I puke.
*Need to switch to another activity right now, for I remembered that ####ty tax code for too many seconds.*
When income happens, tax happens. When income happens later, tax happens later. Quite indisputable, me thinks.Deferring the sale of investment doesn't defer the tax payment, it defers the income.
It's an intentional distortion designed to reward behaviour deemed desirable: holding investments rather than flipping them. What do you see as undesirable, the goal or the method? I'll grant the incentive hasn't been as successful as it was intended to be, but does that argue for a weaker incentive or a stronger one?
Do you see no benefit to labor in rewarding medium and long term investment (the type more likely to create jobs) over day trading and flipping?
Investment income isn't income of any kind until the investment is sold. Defer the sale, defer the income, defer the tax. Can't tax income that isn't there, and until it's realized it isn't there.
“The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary”
H.L. Mencken
posted by Fuchs
The tax code is based on the political philosophy of trickle down economics, which in my "opinion" doesn't work, has never worked, nor will work. It runs contrary to human nature. On the other hand we have the extreme left that desires to remove all incentative for performance from the system and put everyone in gray clothes and embrace the Maoist form of communism, which is even worse than the trickle down philosophy. The biggest challenge we have in the U.S. is moving the debate away from extreme political philosphies not supported by the data to addressing how we can honestly define and then tackle our economic problems.That tax code is not pushing for a better economy; it's saving the rich people taxes. Being a distortion of factor input markets, it's not much else than a redistribution of income (and thus wealth) from the employed parts of the lower and lower middle class (mostly) to the upper class (and mostly to the top 0.1%).
There's no difference in macroeconomic terms. There's only savings (= investment) and consumption. The real economy doesn't mind directly whether two individuals keep a share of one company A and company B respectively forever or if they exchange the shares every minute.
There are no doubt some benefits in other views than the macro view, but they do most certainly not justify a three-digit billion $ market distortion.
This should weigh heavily in the land of the free market fanbois
He argued that somehow deferral justified the lower rate. I did just argue on that basis.Investment income isn't income of any kind until the investment is sold. Defer the sale, defer the income, defer the tax. Can't tax income that isn't there, and until it's realized it isn't there.
We can ignore the deferral of both income and taxation, but then we end up with no justification for different tax rates whatsoever.
I'm fine with that view, but nobody can have it both ways. Either we talk about deferral (BOTH income and taxes) or we ignore the deferral because the hypothetical early realisation is just an illusion anyway.
Both ways I have a strong position. I won't accept a scenario in which deferral is only applied to tax, but not to revenue, though.
Presley's lack of economic expertise is in this discussion visible by his non-use of the strongest argument pro lower capital gains tax rates: Inflation. In fact, I was the only one who mentioned it so far in an apparently successful preventive move.
This argument justifies a somewhat lowered rate (but only one that's lowered according to inflation, not a fixed rate that's independent from both inflation and duration of investment!).
I do thus conclude that his opinion is not based on his own analysis, but on propaganda that was fed to him and that he absorbed properly (albeit apparently incompletely).
As I wrote earlier; there are so much better ways of distorting the markets in favour of more capital investment that the capital gains tax rates can in my opinion only be seen as overwhelmingly special interests gift, and only by a tiny part as steering the economy towards something useful.
Keep in mind that the manufacturing part (primary and secondary sector) of the U.S. economy is only about 22% of GDP. The capital gains tax applies to capital gains from all 100% - and from "investments" abroad. Now keep in mind windfall gains.
In the end (and this might shock the average U.S. citizen) it would be better (=less bad) economic policy to take the full tax rate (=higher revenue, NOT smaller no matter what Laffer curve fantasies say) and make public capital investments into manufacturing capacity or manufacturing-enabling infrastructure.
Giving gifts to capital owners in general instead of for capital investments (in macroeconomic sense) is so much bad policy that it's probably not even economic policy any more.
Then again, we're talking about a country in which "small business" fetishism, Laffer curve and "trickle down economics" dominate the public discourse on economic policy, while behind closed doors the political circus is overwhelmingly being financed by special interests.
Sadly, Germany isn't a good example in regard to the latter, either.
While frustrated with corporate corruption and the disregard of ethics (placing greed above all else), I don't necessarily think our tax system is as out of whack as some imply.
http://www.taxpolicycenter.org/brief...rs/revenue.cfm
http://www.npr.org/templates/story/s...ryId=125997180Individual income taxes and payroll taxes now account for four out of every five federal revenue dollars. Corporate income taxes contribute another 12 percent. Excise taxes, estate and gift taxes, customs duties, and miscellaneous receipts (earnings of the Federal Reserve System and various fees and charges) make up the balance. The composition of tax revenue has changed markedly over the past half century, with payroll taxes contributing an increasing, and corporate income and excise taxes a decreasing, share of the total, but the share provided by individual income taxes has remained roughly constant.
http://www.american.com/archive/2007...pays-the-taxesSIEGEL: And if we looked at, say, the top 20 percent, the top fifth of all incomes in the U.S., who would that be and how much do they pay?
Mr. WILLIAMS: The top fifth starts a little bit above $100,000. That group makes about 56 percent of all income and pay about 70 percent of all taxes.
SIEGEL: So when it comes to the federal income tax, at least, we have a progressive system. The more you make, the more you pay. The less you make, the less you pay. But we pay other taxes, most notably the federal payroll tax. How many Americans pay more in payroll tax, FICA tax, than in income tax?
Mr. WILLIAMS: If you consider both the share paid by the employee and by the employer, which most economists think is borne by the employee, about 75 to 80 percent of us pay more payroll tax than income tax. Only 13 percent don't pay either one of the taxes a far cry from the 47 percent who get out of the income tax.
SIEGEL: And for what percent is there actually a negative income tax? What percent is actually benefitting from, say, the earned income tax credit so that the federal government is giving them money?
Mr. WILLIAMS: We estimate perhaps 40 percent of more of Americans are getting some money back. That's because we've made a number of the credits refundable. So if it takes your taxes down to zero, it can take it below zero and result in a payment.
6. What is the economic logic behind these lower tax rates?
As legend has it, the famous “Laffer Curve” was first drawn by economist Arthur Laffer in 1974 on a cocktail napkin at a small dinner meeting attended by the late Wall Street Journal editor Robert Bartley and such high-powered policymakers as Richard Cheney and Donald Rumsfeld. Laffer showed how two different rates—one high and one low—could produce the same revenues, since the higher rate would discourage work and investment. The Laffer Curve helped launch Reaganomics here at home and ignited a frenzy of tax cutting around the globe that continues to this day. It’s also one of the simplest concepts in economics: lowering the tax rate on production, work, investment, and risk-taking will spur more of these activities and will often produce more tax revenue rather than less. Since the Reagan tax cuts, the United States has created some 40 million new jobs—more than all of Europe and Japan combined.
7. Are lower tax rates responsi#ble for the big budget deficits of recent decades?
There is no correlation between tax rates and deficits in recent U.S. history. The spike in the federal deficit in the 1980s was caused by massive spending increases.
The Congressional Budget Office reports that, since the 2003 tax cuts, federal revenues have grown by $745 billion—the largest real increase in history over such a short time period. Individual and corporate income tax receipts have jumped by 30 percent in the two years since the tax cuts.
You'd think so, but it generally doesn't work out that way. When you work out the actual money paid to the very small number of executives, per company, cutting it by half or two thirds would give you but a drop in the bucket. The actual impact on the Company's balance sheet or operations would be pretty minimal.
I didn't mean to suggest that dissatisfied investors should take money out of the markets, but that they should shift it to companies they feel are better managed. There are thousands of options, many of which (the ones you never read about in the news) are just doing business and getting on with it.
Institutional investors (mutual funds, pension funds, etc) aren't exactly impotent. They don't apply their leverage by voting at shareholder meetings or trying to change management, because they recognize that they haven't the expertise and they'd rather not bother trying to get it. If they don't like the results a company is getting, they don't try to change management, they sell the shares and buy something else.
I think a lot of the less savory trends in modern corporate management were actually boosted by the rise of individual retail investors in the mid 90s. Before then almost everybody invested through institutions. The institutions were a lot more patient: they were well diversified and had a longer horizon. The analysts who advised them actually understood the businesses, read every word of the SEC filings. They were less concerned with quarterly results than with medium to long term company and industry trends.
When the boom in individual investment hit a lot of that changed. The guys who were trading on their own didn't read a 10Q, they just looked straight to the revenues and EPS. They were impatient. They didn't want to hit singles, they wanted home runs. By 98 or 99 even home runs weren't good enough, they wanted grand slams. They weren't huge, but there were lots of them, and they traded a lot, way more than most institutions. Executives were under a whole lot of pressure to deliver short term results... those that did got big rewards, those that didn't got the axe. Don't just look at how much they are paid, look at how executive turnover has spiked up and tenure has dropped. Company has 2 bad quarters, shares are diving, have to show the investors something... show them the head of the CEO and spend big bucks to bring in some new star who's going to turn everything around.
The whole 90s psychosis, the trade-it-yourself attitude and the perception of investing as a way to make the one killer deal that will set you up forever, rather than a way to gradually build value over a period of time... it's had a really nasty impact on the financial scene, and a lot of people who weren't watching in those days don't realize the extent to which it was driven from the bottom up. I remember in those days discussing "the barber rule": if your barber is talking to you about dot com IPOs (or, in retrospect, real estate deals) it's time to sell everything quick.
I can think of no more consummately boring field of study than "modern portfolio theory" - the prevailing wisdom in the financial word circa 1990 - but these days we could use a bit more of it. Of course now we'd have to call it ancient portfolio theory.
You also have to keep in mind the quite exorbitant standard of what Americans call "living". It's probably not so obvious to people who are there all the time, but it's just flat out shocking when you live outside and you go back once in a while to visit. It's one of the things that doesn't add up to me. Everyone talks about how much worse off Americans are, but to someone who left in the late 70s the amount of stuff, the level of luxury, the stuff Americans take for granted is absolutely astounding.
A wee illustrative anecdote:
There's an American couple that spends a third of the year in my little town, a third in India, a third in the US. They're retired teachers, living very frugally; "aging hippies" would not be an unreasonable description. They pulled in from the US a few weeks ago. Les told me that he'd taken a Greyhound bus (not a place where you meet the upper class) from Idaho to Mississippi to see relatives. He recounted with complete astonishment that every seat on the bus had an electrical outlet, the bus was wi-fi enabled, and that practically everyone on the bus was logged in on one gadget or another. Terri, his wife, who is a bit earthy by nature, interjected something like "and every one of them was on Facebook whining about being oppressed and exploited".
Anecdotal evidence, to be sure... but I wonder how many of America's enraged realize what the system they loathe has done for them, and how much they've actually got. I see it all the time in my extreme sport buddies... visiting kayakers, young guys, basically cool but very much of the idealistic left, speaking of the exploitive system and how they're among the oppressed masses while bopping around the world with thousands of dollars in high-tech gear... just for the fun of it. Of course I don't say a word, but the incongruity of it does stick out just a bit.
I don't hate the OWS protestors, I just think they're pretty much irrelevant. They barely know what they're against and they haven't a clue about what they're for, beyond a lame litany of left mantras. They demonstrate no understanding of the problems for which they demand solutions, and they've no idea what solutions they want... not all that different from a cute appealing baby wailing for his teat.
We all have an issue, usually several... but I see no point in listening to people who can't be bothered to learn something about the issue and articulate reasonable solutions.
Nobody has "the solution". There isn't one. Solutions emerge through discussion and conflict among people who have varied opinions, all of them reasonable and well informed. Unfortunately that debate gets drowned out by the pointless polarized partisan shrieking.
“The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary”
H.L. Mencken
If you treat taxes purely as a way of raising government revenue, there's no justification. In the US, as in many other places, tax policy is often used in attempts to promote behaviour deemed desirable. Three obvious questions there:
Should tax policy be used as behaviour modification?
In any given case, is the behaviour for which an incentive is being created actually desirable?
Does the incentive actually create the desired behaviour?
In any given case that would take some looking at.
You could argue that removing the tax break for deferred sale of investments would benefit the rich, since the rich are more likely to be actively flipping investments than the middle or upper middle classes, who are more typically invested directly or indirectly through institutions that are more likely to be holding shares.
The hypothetical income is of course illusory. If you don't sell the investment, there's no income, even if the investment has gained in value. The deferral only applies if you defer sale of the investment. If you sell, you pay tax.
Are you proposing that investment in manufacturing be treated differently than investment in non-manufacturing enterprise? Or that a different set of incentives be granted to investment overseas (very difficult to quantify with so many companies having both US and non-US operations)?
That assumes that a decision has been made to prioritize manufacturing over non-manufacturing investment and award a unique incentive to manufacturing investment.
The US government being what it is, the added tax rate would most likely disappear into the black hole with no capital investment being made
“The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary”
H.L. Mencken
We're gonna have to agree to disagree on this one. I think executives are being compensated in disproportionate amounts relative to their contributions, at the cost of investors and employees. Banks were and still are setting aside 50%+ of their revenue for bonuses with a majority going to top management.
Here's an interesting chart about the CEO/employee pay gap...
That is a ratio of 185.3 which has ballooned by more than 7 times since the 1965 ratio of 24.2. I really don't see anything that justifies such an increase. According to the Military Pay chart for 2012 (which I hope I'm reading right) an E1 with less than 4-months of service gets $1,379/month while a four-star general with 38-years of service makes $19,239/month. That's a ratio of 13.95. Even if you factor in things like BAH/BAS, I don't think the ratio will go past 20. Now, I don't expect Corporate America to adopt an "officers eat last" mentality and narrow the gap to such levels but they should at least eat together.According to the EPI figures, the average CEO received $8,917,000 in compensation in 2009, while the average production worker got $48,130.
I think you misunderstood my statement. I was agreeing with you that one should find other companies to invest in.I didn't mean to suggest that dissatisfied investors should take money out of the markets, but that they should shift it to companies they feel are better managed. There are thousands of options, many of which (the ones you never read about in the news) are just doing business and getting on with it.Originally Posted by JarodParker View Post
For a long time I was frustrated by the futility of option1 especially for retail investors. Even the big mutual funds are impotent. That's why I took option2 and voted with my feet. But even then the stock market as well as the overall national and global economies can still be taken hostage by these institution. And that's why stricter regulation is necessary.
I assure you I'm aware how the other half lives as I've spent quite a bit of time in East Africa. It is what it is. The American middle class cannot downsize to a Thai standard of living, just like Thais wouldn't want to live at Somalia's standard of living. Everyone wants to be upward mobile. Otherwise the CEO's would forgo the high pay, bonuses and everything that comes along with it and just live like their employees. Just because somebody somewhere around the world is doing worse than you doesn't mean that you don't have a legitimate gripe.You also have to keep in mind the quite exorbitant standard of what Americans call "living". It's probably not so obvious to people who are there all the time, but it's just flat out shocking when you live outside and you go back once in a while to visit. It's one of the things that doesn't add up to me. Everyone talks about how much worse off Americans are, but to someone who left in the late 70s the amount of stuff, the level of luxury, the stuff Americans take for granted is absolutely astounding.
It's also the American way to speak up against perceived injustice. The abuses Asians, Africans, Arabs etc accept by saying things like "insh Allah", Americans would never stand for. That's why our official motto should've been "Don't Tread On Me."
Last edited by JarodParker; 11-07-2011 at 03:42 AM.
Posting Permissions
Bookmarks