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I never understood that argument: If I buy some Google stock for $8000 and then the value of it goes up and I then sell the shares for $10000, then the $2000 I

by drcode 7y ago

I never understood that argument: If I buy some Google stock for $8000 and then the value of it goes up and I then sell the shares for $10000, then the $2000 I made have not yet been taxed. Making the argument "but them there people at the Google company already paid this and that tax!" seems to just be some weird category error, in my estimation of the circumstances. This line of argumentation, whenever it comes up, has the feeling of a "pre canned response" that people somewhere are taught to offer up any time someone argues for higher capital gains taxes (though I'll admit I haven't thought about the issue in great enough detail to be completely firm on my assessment, or maybe I'm misunderstanding some important detail)

hurricanetc 7y ago
It’s the difference between the value of the stock and dividend payout before and after corporate taxes are paid. If you bought stock in January 1, 2019 and then sold the stock before the end of 2019 then you were double taxed. Your effective rate is still low in the history of the US but you were technically double taxed. Where it gets tricky and fundamentally alters the equation is when you defer and don’t sell in the same year you bought. You’re still technically double taxed but the effective rate can become comically low. I’m also just outright ignoring inflation but inflation is a huge aspect in this calculation.
- drcode 7y ago
  Not a single comment in this thread, nor the OP document, contained the word "dividend", so I am completely lost as to why you are now referencing something that applies only to dividends, when the discussion clearly is about "investment income" in the general sense, not to mention that dividends don't exist with cryptocurrencies.
  - hurricanetc 7y ago
    You say you don’t understand the double taxation argument then get uppity and annoyed with an explanation. You can’t talk investment income without dividend payments. Google in particular doesn’t pay a dividend but many companies do. If you sign up for a brokerage account you’ll be asked what you want to do with dividend payments. If you own any index funds at all you are getting dividend payments. It’s just as much a part of investment income as inflation. I said “stock and dividends” so I don’t know why you got so hung up on that single aspect.
jshaqaw 7y ago
This isn't a pre-canned response. I'm not arguing for or against the current tax regime. Here is the theory: Assume a normal corporate tax rate of 20%. If a company makes $100 of profit it will have $80 of after tax profit. Let's just be very simple an say that $80 of retained profit makes the value of the company increase by $80 and no dividends are paid. When you go to to sell that stock assuming you hold it long-term then you pay another 20% capital gains tax on the $80 profit so now you are at $64 of after tax profit as an investor from the original $100. Compare that to $100 of income taxed at 35%. You end up pretty much the same place of $65 retained earnings. Prior to the Trump corporate tax cuts (which no I don't agree with before I am downvoted again as a right-wing corporate shill) the difference of double taxation was more stark. At a 35% corporate tax rate and then a 20% short term gains tax the double taxation led to an effective tax rate around 50% on investment profits. One can argue the tax code should disfavor capital income vs. labor income etc but that is a different matter.
- drcode 7y ago
  My comment was a bit flippant, I admit. But still, from an economic standpoint I think it's flawed to think of the $80 after tax profits as just "money owned by the company sitting in a bank account". The idea of "value investing" (in the original sense of the term as it was used in the 1920s-1940s, where people would value companies by just taking "cost of building"+"cost of desks"+"cost of chairs"+"money in bank") is no longer how the stock market works: Virtually all companies are now valued at more than the mere physical assets that they own, so clearly that $80 in the bank account of the company should be worth more than $80 in terms of stock market valuation. After all, the whole point of a corporation is to act as a machine that turns small amounts of money (i.e. capital) into larger sums of money- This is in large part what determines the price of a stock in the investment markets, i.e. how well this machine works... the $80 is merely (a small bit of) evidence that this machine is functioning properly. In conclusion, stock valuation and raw revenue/assets/income are categorically different things and arguing that taxation of one category is equivalent to taxation of the other is a categorical mistake, in my opinion.

by drcode 7y ago

hurricanetc 7y ago

It’s the difference between the value of the stock and dividend payout before and after corporate taxes are paid. If you bought stock in January 1, 2019 and then sold the stock before the end of 2019 then you were double taxed. Your effective rate is still low in the history of the US but you were technically double taxed. Where it gets tricky and fundamentally alters the equation is when you defer and don’t sell in the same year you bought. You’re still technically double taxed but the effective rate can become comically low. I’m also just outright ignoring inflation but inflation is a huge aspect in this calculation.

drcode 7y ago
Not a single comment in this thread, nor the OP document, contained the word "dividend", so I am completely lost as to why you are now referencing something that applies only to dividends, when the discussion clearly is about "investment income" in the general sense, not to mention that dividends don't exist with cryptocurrencies.
- hurricanetc 7y ago
  You say you don’t understand the double taxation argument then get uppity and annoyed with an explanation. You can’t talk investment income without dividend payments. Google in particular doesn’t pay a dividend but many companies do. If you sign up for a brokerage account you’ll be asked what you want to do with dividend payments. If you own any index funds at all you are getting dividend payments. It’s just as much a part of investment income as inflation. I said “stock and dividends” so I don’t know why you got so hung up on that single aspect.

jshaqaw 7y ago

This isn't a pre-canned response. I'm not arguing for or against the current tax regime. Here is the theory: Assume a normal corporate tax rate of 20%. If a company makes $100 of profit it will have $80 of after tax profit. Let's just be very simple an say that $80 of retained profit makes the value of the company increase by $80 and no dividends are paid. When you go to to sell that stock assuming you hold it long-term then you pay another 20% capital gains tax on the $80 profit so now you are at $64 of after tax profit as an investor from the original $100. Compare that to $100 of income taxed at 35%. You end up pretty much the same place of $65 retained earnings. Prior to the Trump corporate tax cuts (which no I don't agree with before I am downvoted again as a right-wing corporate shill) the difference of double taxation was more stark. At a 35% corporate tax rate and then a 20% short term gains tax the double taxation led to an effective tax rate around 50% on investment profits. One can argue the tax code should disfavor capital income vs. labor income etc but that is a different matter.

drcode 7y ago
My comment was a bit flippant, I admit. But still, from an economic standpoint I think it's flawed to think of the $80 after tax profits as just "money owned by the company sitting in a bank account". The idea of "value investing" (in the original sense of the term as it was used in the 1920s-1940s, where people would value companies by just taking "cost of building"+"cost of desks"+"cost of chairs"+"money in bank") is no longer how the stock market works: Virtually all companies are now valued at more than the mere physical assets that they own, so clearly that $80 in the bank account of the company should be worth more than $80 in terms of stock market valuation. After all, the whole point of a corporation is to act as a machine that turns small amounts of money (i.e. capital) into larger sums of money- This is in large part what determines the price of a stock in the investment markets, i.e. how well this machine works... the $80 is merely (a small bit of) evidence that this machine is functioning properly. In conclusion, stock valuation and raw revenue/assets/income are categorically different things and arguing that taxation of one category is equivalent to taxation of the other is a categorical mistake, in my opinion.