Capital Gains Tax

[AlabamaPaul]

That's beside the point and your investment strategy sucks even worse if you lose money or don't even keep up with inflation, but that's beside the point, too. The point is that long term capital gains are eroded by inflation and in lieu of there being some sort of adjustment value for inflation, a reduced rate is the most sensible compromise.

Lazy capital formation deserves no special treatment over that acquired through productive means...

 

[Papa bull]

Excuse me.. but that jug of milk that you sell? Its price is dependent on inflation.

Yes. You're getting warmer!

The price is dependent on inflation but the VALUE is not. The value of a jug of milk today is the same as the value of a jug of milk 30 years ago. The PRICE, however, changed because the VALUE of our currency changed. Our currency is worth less than it was 30 years ago.

If you put a dollar under your mattress 30 years ago, it's still a dollar today, but it will only buy about 1/3 of what it would have 30 years ago. Your money lost almost 2/3 of it's value because inflation ate up it's buying power. That dollar would have bought the jug of milk 30 years ago. Today, you need to take that dollar and add another 1.83 to it to get your jug of milk.

If you're still not getting this, I don't know what to tell you.

 

[Papa bull]

Lazy capital formation deserves no special treatment over that acquired through productive means...

Lazy capital formation.... well, isn't that a special way of looking at it. Thank you for sharing.

 

[AlabamaPaul]

Lazy capital formation.... well, isn't that a special way of looking at it. Thank you for sharing.

What do you call it when comparing it to actual productive work?

 

[Papa bull]

What do you call it when comparing it to actual productive work?

You're not paying attention, are you? It's called LONG TERM CAPITAL GAINS. It's the result of something you bought with the money you made from actual work ending up being worth more than you bought it for sometime later. It's the government's way of taxing you for not being stupid with the money you earned. LTCG if you need an acronym to help you remember it.

 

[Deuce]

Yeah, but it's your money. You work a job, you pay taxes. What's left over, you invest in the stock market and, if your stocks go up, you pay taxes on that. So that's double taxation.

But you know what? You could just buy a bunch of weed with your money, or blow it on strippers. That's tax free.

Oh look, it's the predictable "double taxation" canard.

I get a paycheck. That income is taxed. The money to pay me came from a transaction with a customer, which is (in many states) taxed. The customer got that money from their job, and that income is taxed. Both of our employers pay taxes on income for the company, as well as "their" share of payroll taxes. So I take that money from my paycheck and buy something from somebody else and pay taxes on that transaction. That money is income to the person who made the thing I'm buying, and they're taxed on that income.

But no, capital gains taxes are unfair double taxation! :lamo

 

[YoungConserv]

What do you call it when comparing it to actual productive work?

A risk taking activity whose suceses shouldn't be taxed after your money for the orgional investment was already taxed and most likely earned through labor.

 

[AlabamaPaul]

You're not paying attention, are you? It's called LONG TERM CAPITAL GAINS. It's the result of something you bought with the money you made from actual work ending up being worth more than you bought it for sometime later. It's the government's way of taxing you for not being stupid with the money you earned. LTCG if you need an acronym to help you remember it.

We have an S-Corp. Are you saying our investment in it is worth less than a person that derives income through a stock purchase? You'll have a difficult time convincing myself and my partners...

 

[AlabamaPaul]

A risk taking activity whose suceses shouldn't be taxed after your money for the orgional investment was already taxed and most likely earned through labor.

Your original investment is not taxed, only the gain...

 

[imagep]

How about if we lower taxes on earned income and raise taxes on capital gains to the point where both are equal while eliminating all deductions and credits?

I'm all for that. It's simple, rational, and to the extent that the word "fair" has any meaning, it is fair.

 

[AlabamaPaul]

I'm all for that. It's simple, rational, and to the extent that the word "fair" has any meaning, it is fair.

See, we can agree on some proposals...

 

[YoungConserv]

Your original investment is not taxed, only the gain...

Right your taking my success.

 

[YoungConserv]

I'm all for that. It's simple, rational, and to the extent that the word "fair" has any meaning, it is fair.

Honestly to me fair is only equal treatment under the law.

 

[AlabamaPaul]

Right your taking my success.

Explain. Is your success measured by passive gains or what you have produced?

 

[specklebang]

Right your taking my success.

All taxes are a percentage of your labor or your success. Nothing pretty about that. But it is what it is.

 

[Fisher]

We have an S-Corp. Are you saying our investment in it is worth less than a person that derives income through a stock purchase? You'll have a difficult time convincing myself and my partners...

S-corp profits are not double-taxed the way dividends are

 

[AlabamaPaul]

Honestly to me fair is only equal treatment under the law.

Yet you want to treat income differently for tax purposes. We would probably agree on many issues, but this isn't one of those. If we're going to tax income, it should be treated equally...

 

[AlabamaPaul]

S-corp profits are not double-taxed the way dividends are

Have I made any statement about dividends? My positions on qualified dividends is that they should not be taxed at all...

 

[jaeger19]

Wow. I tried to explain this earlier. Let me try again.

1.00 in 1980 is worth 2.83 today.

So say you invest 10,000.00 in 1980 and in 2013, you sell it for 28,300.00.

You DIDN'T ACTUALLY MAKE ANYTHING. What you sold it for is exactly what you paid for it in REAL inflation adjusted dollars. But you will pay capital gains tax on 18,300.00 that you "profited". The profit, however, is nothing but inflation. You will pay 15% of 18,300 for a total of $2,745.00. How did you make out really? You lost $2,745.00 is what really happened because what you're left with is 28,300 - 2745 = 25,555 and in 1980 dollars, that's only worth 9,017.00. You would have broken even except that the tax you paid on the gains you didn't really make caused you to lose about 10% of the real value of your invested wealth.

Remember, you sold for 28,300. In order to buy your "investment" today, that's what it would cost you. You can't turn around and re-buy that investment with the proceeds of your sale because you LOST MONEY since you got taxed for profit you DIDN'T REALLY MAKE.

I don't know if you get it or not at this point, but if you don't, then I'm not going to be able to teach you about this. If you still don't get it, then you should probably try to research and understand how inflation affects money and investments.

Thank you.. I see your point.. EXCEPT for the fact that for that 23 years, you deferred your taxes on those "earnings" i.e inflation. Whereas someone who "made money" merely based on inflation in an earned income situation,, ended up paying MORE because each year they paid the earned income rate.

Still a better deal for capital gains versus earned income.

 

[imagep]

isn't your man Obama wanting to lower the corporate tax rate and leave the taxes for the rest of America the same, and isn't the GOP who wants to give a tax break to every one
get off the Obama Koolaid it is rotting your brain

I suspect that is a political ploy more than anything. By suggesting that we should lower the corporate tax rate, he comes across as being more conservative than some conservatives, and he has basically shut-up the opposition. If republicans won't go along with the lower corporate rate (obviously as a trade off to having fewer special deals for special companies), then they become the bad guys, and they become hypocrits in the eyes of the American voter.

After just raising the tax rate on the rich, he can't really ask for a tax reduction on the non-rich - not just yet, but I suspect (hope) that will come before his term is over....

Think about it, in a year or two, once everyone realizes that raising taxes on the rich didn't collapse the economy like many conservatives claimed it would, and everyone has pretty much forgot about the tax hike on the rich, he can point to our slow economic growth, and declare that tax cuts for everyone who pays income taxes is the solution. Naturally, we would just cut the bottom few tax rates, possibly even to zero, but that effectively gives everyone who pays income tax on income earned from actual work a tax cut, even rich people who happen to have real jobs (like Warren Buffet). Conservatives could never oppose such a suggestion, and Obama would go down in history as one of the presidents who cut taxes, ended the Great Bush Recession, increase the number of jobs in the US, decreased our deficit from nearly $1.5 trillion to under $500 billion, etc. In 30 years, he could very well be as highly regarded as Regain is now, except with better economic statistics than Regain (who was actually pretty pathetic when you look at that numbers).

And with our federal deficit plummeting, no deficit hawk would be able to claim that cutting taxes is going to increase our deficit - especially when these folks constantly are screaming that "tax cuts increase tax revenues". For them to oppose cuts, they would have to admit that they were either wrong or lying before, and few are big enough to do that.

 

[jaeger19]

You're not paying attention, are you? It's called LONG TERM CAPITAL GAINS. It's the result of something you bought with the money you made from actual work ending up being worth more than you bought it for sometime later. It's the government's way of taxing you for not being stupid with the money you earned. LTCG if you need an acronym to help you remember it.

Yep... so it pushes folks to find long term capital gains rather than invest in actual work. Say I can get a 10%return on money by starting my own business, or a 10% return on investing in stock or some other capital gain and holding it a year. I get taxed less on the capital gain. That pushes money into the markets that should be in developing and expanding companies

 

[Papa bull]

Thank you.. I see your point.. EXCEPT for the fact that for that 23 years, you deferred your taxes on those "earnings" i.e inflation. Whereas someone who "made money" merely based on inflation in an earned income situation,, ended up paying MORE because each year they paid the earned income rate.

Still a better deal for capital gains versus earned income.

They weren't earnings those years. They were only "earnings" when you sold the property. See, short term investments ARE taxed as regular income. They aren't eaten up by inflation like long term investments are and if you buy something now and sell it in 9 months, you don't get some special fat-cat discount on the taxes for the profits. Long terms capital gains taxes only apply to those assets held over 1 year. What you seem to have a hard time grasping is that a price going up because of inflation is not an increase in value for the assets you own and you don't really profit because of that. You don't profit from inflation but the capital gains tax, since it doesn't account for this, DOES tax you for inflation. This is why there are calls for indexing of capital gains. it is possible to pay in excess of 100% for profits from capital gains if they're not indexed and they're not. You never have that problem with earnings.

See: Issues in the Indexing of Capital Gains for Inflation | Tax Foundation

As we've written before, taxing the nominal value of capital gains rather than real inflation-adjusted values can lead to effective tax rates on investments that are dramatically higher than statutory rates—often taxing away the full real value of capital gains and more, with rates in excess of 100 percent in some years.

 

[AlabamaPaul]

Yep... so it pushes folks to find long term capital gains rather than invest in actual work. Say I can get a 10%return on money by starting my own business, or a 10% return on investing in stock or some other capital gain and holding it a year. I get taxed less on the capital gain. That pushes money into the markets that should be in developing and expanding companies

We might get along well in this discussion...

 

[Papa bull]

Yep... so it pushes folks to find long term capital gains rather than invest in actual work. Say I can get a 10%return on money by starting my own business, or a 10% return on investing in stock or some other capital gain and holding it a year. I get taxed less on the capital gain. That pushes money into the markets that should be in developing and expanding companies

It's not "either or". Can you replace your "work" with long term capital gains? Not really. But more importantly, as I read your message, it seems you really don't understand how equities markets work because long term capital gains DOES incentivize investors to capitalize industry, which helps expand companies. We WANT to encourage people to invest and invest long term. Some countries don't tax capital gains at all. And of those that do, virtually all of them have lower rates on capital gains. It's not some boondoggle law that we dreamed up just to make rich people happy. There are some very good reasons why capital gains is a reduced rate from normal income tax and the whole world get it; not just us.

Right now, you could put money in a very conservative fund and your risk of losing it wouldn't be very high even though you would still have some risk of losing it. The problem is that you wouldn't make much, either and, in fact, CD's aren't covering inflation these days. I don't know why people think that investing money is an easy way to get rich but it seems that the people who think that aren't people that invest. Now go figure that one out... they know an easy way to make money and aren't doing it.

Seriously, you should research Long Term Capital Gains and get some pro and con information to help you sort out what it is, why it is and whether or not it's a good idea. You can't really decide until you know a lot more than you do about it and., what the hell... maybe you can leverage the knowledge you gain to improve your finances one day. You can't go wrong trying to understand the world of modern finance.

 

[Fisher]

Have I made any statement about dividends? My positions on qualified dividends is that they should not be taxed at all...

Your comment about stock purchase implied dividends. Qualified dividends already get special treatment. As far as I am concerned they should all be taxed at a single flat rate and not be taxed based on income level of the recipient and S-corp owners should be heavily penalized if they take the majority of their money as non-payroll money. I say this as someone who owns S-corps, LLC's and am in partnerships--K-1 and 1099 income should all be taxed at a single flat rate across the board for everyone.

I just get sick of people whining about paying taxes on income that gets preferential treatment already. If you want to complain about all that depreciation non-sense I am all ears though. I do support eliminating the forced depreciation and recapture even though it does theoretically constitute another tax benefit in the long run.