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> Other than that Piketty argues that larger wealth means larger returns (per unit capital) and that is a very strong argument against a flat capital gains tax.
by xorfish 7y ago
> Other than that Piketty argues that larger wealth means larger returns (per unit capital) and that is a very strong argument against a flat capital gains tax.
But someone who earns more will also have a higher marginal tax rate.
There is probably better risk tolerance once you have a net worth above e few months of expenses. But someone with $10M will be able to get the same risk adjusted return as someone who has a net worth of $100k.
- carlob 7y ago> But someone who earns more will also have a higher marginal tax rate. Not currently on capital > But someone with $10M will be able to get the same risk adjusted return as someone who has a net worth of $100k. That's exactly what Piketty has shown to be false. If you look at stuff like endowments and sovereign funds you'll see gains that are nowhere near what's possible even for funds that have $100M in capital. There are economies of scale involved here, both in diversification and in management. Moreover some markets are not even available to investors who are not larger than a certain threshold.
- sokoloff 7y agoLong term capital gains taxes in the US currently have a progressive (bracketed) structure. They start at 0%, go to 15%, then 20%, then 23.8%. Short term capital gains are taxed at ordinary income rates, which also has a progressive rate structure as GP claimed.
- xorfish 7y ago> Not currently on capital I said in my comment that return on capital should be taxed the same as labor income. > That's exactly what Piketty has shown to be false. If you look at stuff like endowments and sovereign funds you'll see gains that are nowhere near what's possible even for funds that have $100M in capital. Do they really outperform a basic index fund strategy? Any data on this? There isn't a market that offers better risk adjusted returns than than what is available with affordable index funds. The only exception are probably the index funds of Dimensional Fund Advisors. They are only available to investors that have an approved financial advisor.
- carlob 7y ago> Do they really outperform a basic index fund strategy? Any data on this? Yeah, Piketty's book. But of course the Norwegian government and Harvard administrators are just a bunch of idiots, they have billions of dollars to invest and didn't think of a basic index fund! Now they can save a lot of money firing whoever was managing it for them!
- xorfish 7y agoMost fund managers are very intelligent people, yet most of them fail to outperform a basic index fund. The Harvard endowement underperformed the sp500 by more than 3% annually for the last 10 years. So instead of a plus of 220% it produced a plus of about 130% over the same period. There is lots of data that shows that passive strategies outperform hedge fund and these university funds.
- sokoloff 7y agoIt might be sound strategy for an endowment to give up upside in the most raging of bull markets that we’ve ever seen in exchange for lower drawdown in down markets. A low beta portfolio underperformed (by definition) in 2009-2019. I’m a staunch proponent of passive index investing so I suspect we largely agree on philosophy, but the mere fact that someone underperformed in the somewhat historically anomalous market we’ve enjoyed for the last decade is not conclusive that they clowned it, IMO. If they outperformed 2005-2008 or outperform in the next bear market, that would be evidence again full clown performance.