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Problem is that capital gains aren’t all gains, they include inflation. I’m all for a transition to ordinary income if you index the basis of investments to the
by valuearb 8y ago
Problem is that capital gains aren’t all gains, they include inflation. I’m all for a transition to ordinary income if you index the basis of investments to the inflation rate.
- harryh 8y agoImagine how much more heated debates about the accuracy of the government CPI calculation would be if the number formed the basis of a bunch of people's tax bills. Oh man oh man!
- imbur 8y agoIsn't this accounted for with the standard deduction and marginal tax brackets?
- harryh 8y agoNo. The standard deduction essentially establishes a 0% rate on a "minimum $ necessary to live" salary. Marginal tax brackets establish a progressive tax system which is consistent with diminishing marginal utility of money. The problem that valuearb refers to is completely different. Because of inflation I could buy an asset in 1 year, sell it 5 years later and show a nominal gain (sale price > purchase price) but have actually made any real money. By most standards it would be unfair to tax me on this sale.
- gnicholas 8y agoNot at all. Neither of these account for how long you've held something, which is what implicates inflation. For example, Person A buys stock in Company A and holds it for just over 1 year. Person A's gain on this stock is $1,000. Person B has held stock in Company B for the last 50 years. He sells at exactly the same time as Person A and has the same $1,000 taxable gain. If we accounted for inflation, Person B would pay much less tax than Person A, because Person B's gain is mostly (if not completely) inflation. Person A's gain, on the other hand, is mostly real gain, not inflation.
- xapata 8y agoOr we could simply allow shareholders to pressure companies into giving dividends, as was the original intent for the value of a share. The bizarre focus on capital gains at the expense of dividends was created by the tax code. Switching it back would eliminate the perverse incentive for corporations to merge and acquire for no other reason than to avoid disbursing capital as dividends.
- phkahler 8y agoA hundred times this. If your plan is make money by selling at a higher price, you're playing the greater-fool game. If you make your return via dividends, it is a direct reflection of the value of the company.
- chii 8y agobut how does that system allow for a company that re-invest all profits into growing, if doing so is a tax disadvantage? selling at a higher price is how investors "get out" of the game, but allow other investors to "take over the reigns", all without the company having had to pay out dividends at inopportune times.
- JetSpiegel 8y ago> but how does that system allow for a company that re-invest all profits into growing, if doing so is a tax disadvantage? Use your own money to gamble. Once you accept shareholder's money, you play by their rules. If you are not paying dividends, register as non-profit.
- phkahler 8y ago>> selling at a higher price is how investors "get out" of the game, but allow other investors to "take over the reigns", all without the company having had to pay out dividends at inopportune times. No. Selling is how investors get out. No need for a higher price because they presumably got a return via dividends. If there's no increase in stock price, there will be no capital gains on the sale price either. Reinvesting all the profits into growing is a phenomenon that became popular due to tax law. A dividend paying company can still make the choice to reinvest profits rather than pay them out. That will just mean a lower dividend than if they paid out all the profit to shareholders.