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The (pro-forma) beatings will continue until investors demand dividends. Owners, sharing the profits of the businesses they own, rather than making a levered b

The (pro-forma) beatings will continue until investors demand dividends. Owners, sharing the profits of the businesses they own, rather than making a levered bet on central bank money printing. Crazy, I know.

contravariant 11y ago
That's an amazingly elegant solution.
aetherson 11y ago
Dividends are taxed as ordinary income, which for a high income person means that they lose 25 cents on the dollar or more compared to the company retaining the value and selling their investment.
- toast0 11y ago
  Qualified dividends are taxed as long term capital gain, which is nicer than ordinary income. However, unrealized capital gains from a stock buyback aren't taxed until realized, which is even nicer (unless tax rates go up)
- carsongross 11y ago
  Yep. We should fix that. I vote we make dividends deductible for the corporation, and treat capital gains as income, since it is.
  - aetherson 11y ago
    Cap gains is genuinely different from earned income in that you have to risk your capital to get it, and you have to risk your capital in a way that at least on some margin has social benefits. Like, if I invest $10k for a year in the hopes of getting 6% return, that's a thing! I could've gone on a really swank vacation for that $10k, or I could've bought a really nice TV or whatever. Instead, I took that $10k and I said, okay, maybe this will give me $600. Or maybe I'll lose $1k instead. But let's say it pays off, and I get $600. But it's taxed. If it's taxed at 20% (current cap gains), I get $480. If it's taxed at ordinary income (and my income is high), I get $360. That's not irrelevant. I might pretty reasonably say "Man, in order to get a chance at $360, I'm tying up $10k for a year? And maybe I lose some of the $10k instead?" And it's particularly relevant if this belief that cap gains should be taxed as ordinary income is paired with a belief that the top marginal tax rate for ordinary income should be higher than it is. We've seen, all over the place, recently, that the financial sector responds to incentives. When it becomes hard to generate a return through traditional means, the financial industry chases returns no matter what. Sometimes the consequences of that are kind of scary. Now, if someone understands all that and has a considered opinion that none the less capital gains should be taxed as ordinary income, well, okay. But I've never actually seen anyone tackle all that. Instead, it's always one pithy sentence like "it should be treated as income, since it is."
    - carsongross 11y ago
      I don't agree that there is a difference, at least from a taxation standpoint. I see no reason why someone who made a million dollars trading stocks (or selling homes) should be taxed differently than someone who made it performing open heart surgery. There isn't some magical ethical category open to capital. I risk my life commuting to work to perform labor. What of it? In any event, even if I can't convince you that there shouldn't be a distinction between income and capital gains, I hope I can convince you that there shouldn't be a taxation difference between dividends and capital gains. We need to make the way company ownership works much more like an LLC, where profits flow through to owners by percentage of ownership. Capital gains are easily manipulated with creative accounting, the madness of crowds, central bank money printing and, most significantly, leverage fluctuations. If anything, I would want tax capital gains more heavily than dividends, which do not lie. A steady return of profits to owners would enforce the discipline our corporations so desperately need. Wall Street, of course, doesn't want that, and neither do most boards, because it would force them to give up cash that they would rather use for bonuses and stock grants. And that would be great.
      - aetherson 11y ago
        We entirely agree that the difference in taxation between dividends and cap gains is ridiculous -- especially since you can "time" cap gains and get a tax advantage from that. Why privilege cap gains more than that, compared to dividends?

contravariant 11y ago

That's an amazingly elegant solution.

aetherson 11y ago

Dividends are taxed as ordinary income, which for a high income person means that they lose 25 cents on the dollar or more compared to the company retaining the value and selling their investment.

toast0 11y ago
Qualified dividends are taxed as long term capital gain, which is nicer than ordinary income. However, unrealized capital gains from a stock buyback aren't taxed until realized, which is even nicer (unless tax rates go up)
carsongross 11y ago
Yep. We should fix that. I vote we make dividends deductible for the corporation, and treat capital gains as income, since it is.
- aetherson 11y ago
  Cap gains is genuinely different from earned income in that you have to risk your capital to get it, and you have to risk your capital in a way that at least on some margin has social benefits. Like, if I invest $10k for a year in the hopes of getting 6% return, that's a thing! I could've gone on a really swank vacation for that $10k, or I could've bought a really nice TV or whatever. Instead, I took that $10k and I said, okay, maybe this will give me $600. Or maybe I'll lose $1k instead. But let's say it pays off, and I get $600. But it's taxed. If it's taxed at 20% (current cap gains), I get $480. If it's taxed at ordinary income (and my income is high), I get $360. That's not irrelevant. I might pretty reasonably say "Man, in order to get a chance at $360, I'm tying up $10k for a year? And maybe I lose some of the $10k instead?" And it's particularly relevant if this belief that cap gains should be taxed as ordinary income is paired with a belief that the top marginal tax rate for ordinary income should be higher than it is. We've seen, all over the place, recently, that the financial sector responds to incentives. When it becomes hard to generate a return through traditional means, the financial industry chases returns no matter what. Sometimes the consequences of that are kind of scary. Now, if someone understands all that and has a considered opinion that none the less capital gains should be taxed as ordinary income, well, okay. But I've never actually seen anyone tackle all that. Instead, it's always one pithy sentence like "it should be treated as income, since it is."
  - carsongross 11y ago
    I don't agree that there is a difference, at least from a taxation standpoint. I see no reason why someone who made a million dollars trading stocks (or selling homes) should be taxed differently than someone who made it performing open heart surgery. There isn't some magical ethical category open to capital. I risk my life commuting to work to perform labor. What of it? In any event, even if I can't convince you that there shouldn't be a distinction between income and capital gains, I hope I can convince you that there shouldn't be a taxation difference between dividends and capital gains. We need to make the way company ownership works much more like an LLC, where profits flow through to owners by percentage of ownership. Capital gains are easily manipulated with creative accounting, the madness of crowds, central bank money printing and, most significantly, leverage fluctuations. If anything, I would want tax capital gains more heavily than dividends, which do not lie. A steady return of profits to owners would enforce the discipline our corporations so desperately need. Wall Street, of course, doesn't want that, and neither do most boards, because it would force them to give up cash that they would rather use for bonuses and stock grants. And that would be great.
    - aetherson 11y ago
      We entirely agree that the difference in taxation between dividends and cap gains is ridiculous -- especially since you can "time" cap gains and get a tax advantage from that. Why privilege cap gains more than that, compared to dividends?