"Tax and Spend" is Fiscally Responsible; "Borrow and Spend" is Not

[jaeger19]

If the only effect of investment was to increased bank accounts for investors you might have a point, but it isn't the only effect. Also, the point being made was that lower tax rates lead to higher tax revenue in capital gains, and that is before you consider all of the private businesses and jobs that such investment made possible.



Nope. Lowering capital gains taxes means that investors can take more risk on more shaky companies and realize the same ROI. So some startup with a potentially better widget suddenly gets investors that they wouldn't have gotten had the CG tax been higher. That Widget company now has working capital and hires more workers to market and sell their widgets. Those widget employees then stash a piece of their earning sin a 401K that is more healthy and diversified given the flexibility in risk assessment due to a less burdensome tax liability.

This increase in investment is why the resulting tax revenue went UP when the rate was lowered rather than down. Lower tax rate --> More investment

No offense but that's largely bull.

If I invest in a company and it makes money that year and I get a portion of it.. I pay earned income.

IF however... I buy a stock from JOE who has say Boeing.. .then NONE of the money I gave to Joe goes to Boeing... not one dang dime. Its just goes to Joe. I then hold that stock for a year and sell it to steve for a profit. I then pay capital gains on that income.

NOT ONE CENT.. went to help Boeing, or was invested in Boeing. And that's how a lot of capital gains is being made.. in playing in the stock market.. which does not help any company except at an IPO. and usually.. those IPO's are only when a company is doing well enough or appears to be able to do well enough to offer an IPO.. .

 

[James972]

. which does not help any company except at an IPO.

not true! buying stock means you own the company and must support it with more capital if the company needs more money and gets it by issuing more stock thus diluting existing stock. Or, if the company is doing well it can buy stock back thus making existing stock more valuable. Owning stock helps a company like being a parent helps a child.

 

[Kushinator]

Owning stock helps a company like being a parent helps a child.

Companies just have lots of parents huh?

 

[jaeger19]

not true! buying stock means you own the company and must support it with more capital if the company needs more money and gets it by issuing more stock thus diluting existing stock. Or, if the company is doing well it can buy stock back thus making existing stock more valuable. Owning stock helps a company like being a parent helps a child.

That's is so wrong.. on so many levels that its not even worth discussing with you.

holy crap.. buying stock means you "must support it with more capital if the company needs more money?"...

Yeah.. you need to pick up a book... Might I suggest: Stock Investing For Dummies: Edition 4
Paul Mladjenovic January 10, 2013
John Wiley & Sons

Stock Investing For Dummies: Paul Mladjenovic: 9781118376782: Amazon.com: Books

 

[James972]

That's is so wrong.. on so many levels that its not even worth discussing with you.

holy crap.. buying stock means you "must support it with more capital if the company needs more money?"...

if a company needs more money it can issue more stock thus diluting existing stock. The stock market remains a mechanism that funds companies long after the IPO. Now do you understand?

 

[jaeger19]

if a company needs more money it can issue more stock thus diluting existing stock. The stock market remains a mechanism that funds companies long after the IPO. Now do you understand?

Yes.. if a company needs more money it can issue more stock. So what.

Most of the trading done in the market is not initial ipo's and companies issueing more stock. Most trading in the market.. and most of the capital gains generated is between two stockholders and has little to nothing to do with the companies finances

 

[James972]

Yes.. if a company needs more money it can issue more stock. So what.

so what? it means the companies stock remains important to the company long after the IPO

 

[James972]

Yes.. if a company needs more money it can issue more stock. So what.

Most of the trading done in the market is not initial ipo's and companies issueing more stock. Most trading in the market.. and most of the capital gains generated is between two stockholders and has little to nothing to do with the companies finances

absurd, if the companies finances improve so does the stock price. If the company goes bankrupt the stock becomes worthless. The correlation is almost 100%. You got it backwards. What a surprise

 

[Thrilla]

"Tax and Spend" is Fiscally Responsible; "Borrow and Spend" is Not.

And yet borrow and spend is all the Republicans have to offer. They refuse to actually fight for big spending cuts--on the contrary, they actually want to increase the single biggest discretionary item there is--defense spending.

They passed a significant spending increase last December, but their stubborn unwillingness to raise taxes means we'll just tack the cost onto the deficit (for which they'll blame Obama, of course).

They won't even consider obvious tax hikes, like ending the special tax treatment on carried interest or taxing absurdly cheap oil.

Since they won't fight to cut big spending programs like Medicare, Social Security, or defense, then the way to balance the budget is to raise taxes. But they are ideologically blocked from doing that. So deficits remain our destiny until we voters show the Republicans the door.

removing money from the economy while simultaneous injecting money in the economy is "fiscally responsible"?

well, I guess if you (falsely) believe taxes actually pay for things, it might seem that way.

 

[James972]

" So deficits remain our destiny until we voters show the Republicans the door.

of course that's 100% mistaken. Republicans have tried 30 times to make deficits illegal and each effort has been killed by Democrats. Where have you been????

 

[jaeger19]

so what? it means the companies stock remains important to the company long after the IPO

Sure.. it means its important.

That again does not mean that the income from capital gains.. which we are talking about.. is going to the company or benefiting the company.

 

[jaeger19]

absurd, if the companies finances improve so does the stock price. If the company goes bankrupt the stock becomes worthless. The correlation is almost 100%. You got it backwards. What a surprise

Yeah you have no clue.

Trading is done between stockholders.. and the vast majority of those stockholders are NOT the company.. so the capital gains generated.. ARE NOT going to the company.

Pure and simple.

You don't have a clue.

 

[James972]

You don't have a clue.

about what exactly??????????????

 

[upsideguy]

Well I call a 28% increase from 2003 a pretty good jump AND the fact that the rates were to be phased in up through 2006, they were barely in effect 2002-2003 and Congress voted to jump start them and fully implement in 2004 and that was a 24% increase.

But you REALLY want to see the effects of tax rates?

Historical Capital Gains and Taxes

Almost double the tax revenues at the Bush tax rate which was half of the Clinton tax rate.

Well, you may like the 23% increase, but you only get there when you co-mingle (confuse) wage taxes (social security) with income taxes. Bush cut the income tax rates, resulting in 22% decrease in income tax collections. It took 7 years for income tax receipts to slightly exceed those pre-cuts.



The Bush tax cuts resulted in the federal government collecting individual federal income taxes at an average rate of 7.4% GDP versus 8.7% of GDP before. Discretionary government spending is 6.8% of GDP.

View attachment 67198035

 

[James972]

Now Science Free, with 1/3 less facts

just BS lie or can you present your most significant example!!!

 

[Linc]

just BS lie or can you present your most significant example!!!

dear--since you couldn't attack this poster's post, why did you attack his signature ?

 

[James972]

dear--since you couldn't attack this poster's post, why did you attack his signature ?

dear, libertarians and conservatives can obviously attack liberalism and have done so for 1000 years. If you doubt it please present a significant liberal position and we'll show you how. Don't be afraid to try. How will you learn if you are afraid to try? Thanks

 

[JasperL]

This does not show what you think it does. And as I have alreday shown, the growth in CGT revenue as a % of GDP grew 40% with the reduction in CGT, matching the high response curve fairly closely. Note also that your source's estimated response shows that there is a severe diminishing return on revenue pretty much from 20% onward (though it starts at about 5%) to the point that anything above 20% has almost no effect of tax revenue.

Interesting timing of that article too since the CGT was increased in 1988 and revenue as a % of GDP fell as a result.

I know this is a few days old, but I haven't seen it mentioned so I'll say it here. If you provide a tax preference to a given form of income, in this case capital gains (rates 15-20%), of nearly half the rate on ordinary income (roughly 35-40%), obviously the amount of income in the form of capital gain will go up. Obvious examples are anyone who CAN get paid in stock options was paid in stock options, taxed at cap gains rates. Companies nearly stopped issuing dividends at all and retained the cash, or used that cash to buy back shares, to boost share prices. Furthermore, if you can invest in an operating entity and make 10% pre-tax on your money (taxed at ordinary rates) or invest in a hedge fund making 10% (taxed at half that rate) the rational thing is to gamble in the market. So money no doubt was diverted from investing in operating entities like LLCs and partnerships and starting new businesses to river boat gambling in the markets.

The point is it is unsurprising that huge tax preferences have increased the amount of income reported as capital gains but that observation doesn't even begin to demonstrate that capital gains cuts increase overall revenue. The simplest example is CEO pay. If $5 billion in CEO pay shifts nearly overnight from ordinary income (wages and cash bonuses) to stock, you'll see $5 billion in additional capital gains each year, but $5 billion less in wages and cash bonuses. Capital gains revenue goes up, but tax revenue on CEO pay drops by double (in this simple example).

More important, if investors were indifferent between "capital gains" and "ordinary income" derived from making something or providing a service, there is at least a possibility that substantial new money now invested in river boat gambling on Wall street would be invested in the productive economy.

Finally, just since the rates were lowered under Clinton, we've had TWO massive financial bubbles and bursts. So there isn't any doubt the low preferential rates fuel speculation but it's not clear, especially after the last financial collapse, whether that's in fact a net positive for the economy.

 

[jaeger19]

I know this is a few days old, but I haven't seen it mentioned so I'll say it here. If you provide a tax preference to a given form of income, in this case capital gains (rates 15-20%), of nearly half the rate on ordinary income (roughly 35-40%), obviously the amount of income in the form of capital gain will go up. Obvious examples are anyone who CAN get paid in stock options was paid in stock options, taxed at cap gains rates. Companies nearly stopped issuing dividends at all and retained the cash, or used that cash to buy back shares, to boost share prices. Furthermore, if you can invest in an operating entity and make 10% pre-tax on your money (taxed at ordinary rates) or invest in a hedge fund making 10% (taxed at half that rate) the rational thing is to gamble in the market. So money no doubt was diverted from investing in operating entities like LLCs and partnerships and starting new businesses to river boat gambling in the markets.

The point is it is unsurprising that huge tax preferences have increased the amount of income reported as capital gains but that observation doesn't even begin to demonstrate that capital gains cuts increase overall revenue. The simplest example is CEO pay. If $5 billion in CEO pay shifts nearly overnight from ordinary income (wages and cash bonuses) to stock, you'll see $5 billion in additional capital gains each year, but $5 billion less in wages and cash bonuses. Capital gains revenue goes up, but tax revenue on CEO pay drops by double (in this simple example).

More important, if investors were indifferent between "capital gains" and "ordinary income" derived from making something or providing a service, there is at least a possibility that substantial new money now invested in river boat gambling on Wall street would be invested in the productive economy.

Finally, just since the rates were lowered under Clinton, we've had TWO massive financial bubbles and bursts. So there isn't any doubt the low preferential rates fuel speculation but it's not clear, especially after the last financial collapse, whether that's in fact a net positive for the economy.

Very true.

Except that I would argue that its clear that low preferential rates are clearly not good for the economy in the long term.

 

[Casper]

Re: "Tax and Spend" is Fiscally Responsible; "Borrow and Spend" is Not

Balance the budget then get back to me on Borrowing or Taxing more. One of these days People are going to realize neither side has it right, it will be too late but they will realize it.

 

[jmotivator]

I know this is a few days old, but I haven't seen it mentioned so I'll say it here. If you provide a tax preference to a given form of income, in this case capital gains (rates 15-20%), of nearly half the rate on ordinary income (roughly 35-40%), obviously the amount of income in the form of capital gain will go up. Obvious examples are anyone who CAN get paid in stock options was paid in stock options, taxed at cap gains rates. Companies nearly stopped issuing dividends at all and retained the cash, or used that cash to buy back shares, to boost share prices. Furthermore, if you can invest in an operating entity and make 10% pre-tax on your money (taxed at ordinary rates) or invest in a hedge fund making 10% (taxed at half that rate) the rational thing is to gamble in the market. So money no doubt was diverted from investing in operating entities like LLCs and partnerships and starting new businesses to river boat gambling in the markets.

The point is it is unsurprising that huge tax preferences have increased the amount of income reported as capital gains but that observation doesn't even begin to demonstrate that capital gains cuts increase overall revenue. The simplest example is CEO pay. If $5 billion in CEO pay shifts nearly overnight from ordinary income (wages and cash bonuses) to stock, you'll see $5 billion in additional capital gains each year, but $5 billion less in wages and cash bonuses. Capital gains revenue goes up, but tax revenue on CEO pay drops by double (in this simple example).

More important, if investors were indifferent between "capital gains" and "ordinary income" derived from making something or providing a service, there is at least a possibility that substantial new money now invested in river boat gambling on Wall street would be invested in the productive economy.

Finally, just since the rates were lowered under Clinton, we've had TWO massive financial bubbles and bursts. So there isn't any doubt the low preferential rates fuel speculation but it's not clear, especially after the last financial collapse, whether that's in fact a net positive for the economy.

Except that regular income tax revenue and capital gains revenue increased simultaneously since the CGT cuts began in '96. I see no negative correlation between capital gains tax revenue and regular income tax revenue.

 

[James972]

More important, if investors were indifferent between "capital gains" and "ordinary income" derived from making something or providing a service, there is at least a possibility that substantial new money now invested in river boat gambling on Wall street would be invested in the productive economy.

Far more important, if you eliminated the cap gains tax venture capitalists would have far more venture capital to invest in new ventures like Apple, Facebook, Amazon, Intel, Google etc etc . Libsocialists want us the believe the whole idea is to get govt more money to waste!

 

[JasperL]

Except that regular income tax revenue and capital gains revenue increased simultaneously since the CGT cuts began in '96. I see no negative correlation between capital gains tax revenue and regular income tax revenue.

But that's not when the CGT cuts started - top ordinary income rates were 40% starting in 1993, and cap gains stayed at 28. They dropped to 20 in 96 but at that point there was already a 12% preference for cap gains that increased to 20%. There were also big preference through most of the Reagan era. The only time there wasn't since before Carter was the brief period when ordinary income and cap gains were both at 28%.

At any rate, you can't eyeball this stuff and figure out the revenue impact, and we know for certain that a lot of the increase in "capital gains" is the inevitable shifting of income from what would have been "ordinary" income to "capital gains" to take advantage of the huge rate advantages. I've seen estimates that half the code, 20,000 pages, are just to deal with this one preference, and it's because everyone wants to shoehorn every gain possible into preferred "capital gains."

 

[JasperL]

Far more important, if you eliminated the cap gains tax venture capitalists would have far more venture capital to invest in new ventures like Apple, Facebook, Amazon, Intel, Google etc etc . Libsocialists want us the believe the whole idea is to get govt more money to waste!

No, the objection I have to "capital gains" preferences is they're often bull**** and do not really incentivize those kinds of investments. We could structure the "capital gains" preferences that way, but we don't.

And why in the world do we give the investors in a business like Apple a 0% tax rate, but tax the business itself, the entity hiring people and making products or delivering services, at ordinary income rates? Why give an equity investor a 0% tax rate, and tax a lender at ordinary income rates for the interest? Why does the secretary get taxed at ordinary rates, but the CEO who gets paid in stock pay 0% in your plan? Does the idea of an equity bubble and crash every 8-10 years appeal to you? We know there is lots of speculation, river boat gambling on equities, incentivized by the tax preferences, and speculative bubbles and bursts are the fairly predictable result.

Seems 180 degrees wrong to me. If we're going to tax something at 0%, tax manufacturing or service industry income at 0% and tax Wall Street at 40%. Wall Street is essentially a blood sucking part of the economy - it's role is to facilitate the 'real' economy, not an end in itself, but we reward people who do nothing more than figure out trading strategies like kings, and tax some poor guy making real products, hiring a bunch of folks to make those goods, at twice the rate. Seems obviously backasswards.

 

[jmotivator]

But that's not when the CGT cuts started - top ordinary income rates were 40% starting in 1993, and cap gains stayed at 28. They dropped to 20 in 96 but at that point there was already a 12% preference for cap gains that increased to 20%. There were also big preference through most of the Reagan era. The only time there wasn't since before Carter was the brief period when ordinary income and cap gains were both at 28%.

In previous statements I compared earlier but periods as well, with prolonged CGT tax revenue increases seen in the 80s versus the low rates of the previous decades.

At any rate, you can't eyeball this stuff and figure out the revenue impact, and we know for certain that a lot of the increase in "capital gains" is the inevitable shifting of income from what would have been "ordinary" income to "capital gains" to take advantage of the huge rate advantages. I've seen estimates that half the code, 20,000 pages, are just to deal with this one preference, and it's because everyone wants to shoehorn every gain possible into preferred "capital gains."

I've said as much myself. One of the reasons why the 2003 CGT cut is problematic as a teaching tool is that the cut was announced along with the announcement of when the cut would end. This "Come and get it!" approach no doubt lead to a lot of early cash outs.