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And that's just the base Federal rate. If you add NIIT at 3.8%, I believe that is the highest long-term capital gains rate in the developed world. And that is b
by jandrewrogers 6y ago
And that's just the base Federal rate. If you add NIIT at 3.8%, I believe that is the highest long-term capital gains rate in the developed world. And that is before you add State taxes, like the 13.3% in California.
Unlike some other countries, there is no cost-basis adjustment for inflation and there is a limited ability to deduct capital losses, both of which can be substantial for long-term investments and risk capital.
All in, this makes it very difficult to get a competitive return on long-term high-risk investments, like tech startups, biotech, etc compared to almost any other asset class. Instead, it strongly incentives cashflow and rent-seeking investments, which have better risk and tax profiles in almost every regard if this goes through.
As a second-order effect, this would cause an extraordinary amount of capital to be moved into real estate which is already experiencing very high price inflation.
- da_big_ghey 6y agoyes you are make very good points. we are doing better if we make consumption and land value taxes our majority for federal. then try maybe different models at state level, make states fund their own things once more. we try fifty different models, we find the best and use it, then we try new ones on that basis and find better again. one federal model is create the unintended consecuence for each state in nation, state model is damage only one. let us play once more to strengths of federal models.
- imtringued 6y agoI don't think land value taxes will ever be implemented in a way that actually lives up to the ideals. Switching from land ownership to ground leases is less disruptive to the current tax system and has similar benefits.
- bpodgursky 6y agoNot to mention that the fed is now aiming for 2+% inflation (and let's be real, it's going to be higher), so cashing out even after a 10-year breakeven investment that earned nothing is going to cost you over 10% on withdrawl.
- da_big_ghey 6y agoi am not understand why you have downvote, constant hedonic adjustmint from fed is making inflation disapear. cpi is failing to include many important things and we are therefore have missing much inflation over past years. you must see m1 graph over past year, then tell me there have been less than 2% inflation? https://fred.stlouisfed.org/series/M1SL https://fred.stlouisfed.org/series/M1SL
- bpodgursky 6y agoDownvotes here are reflexive. Nobody is actually reading or thinking about the fact that inflation + unindexed cap gains is just a wealth tax.
- imtringued 6y agoConsidering the state of the US economy over the last 20 years, that's exactly what's needed. You can peddle this idea in countries that are struggling to find investors. It certainly makes sense in economies that are prone to high inflation.
- dv_dt 6y agoThe Fed has been targeting 2% inflation for years now, and it has never materialized. Inflation can be caused by money supply expansion, but also economic capacity losses (eg. think chip shortages, climate disasters, and cargo ships stuck in canals).
- bpodgursky 6y agoThe Fed has also never attempted anything even approaching the QE and stimulus of the past year. It's really completely uncharted territory.
- dv_dt 6y agoThe post 2008 QE was 4.3T in the same order of magnitude of the QE of the past year. There was no runaway money supply driven inflation. If you look at work from macro economist Claudia Stam, who as part of the Fed studied the effects of 2008 recession aid programs - her work concludes that we actually have more margin for monetary stimulus and we can alleviate a lot of economic disruption by undertaking that stimulus for valuable infrastructure investments. If one were to compare to 2008 to the pandemic, I'd actually hypothesize that the main inflation driver now is not from QE (though it is affecting the stock market somewhat like it did in 2008), but driven from disrupted lines of production from a mix of pandemic and climate change driven infrastructure disruption. And it's that capacity drop that is pushing most of the inflation we're seeing now.
- dv_dt 6y agoThere is also legislation kicking around to reinstate the SALT exemption, so if that happened the state taxes would offset the federal.
- DiNovi 6y agomost countries in the developed world dont have special carve outs for capital gains and tax them as ordinary income
- jandrewrogers 6y agoThis is false, as any who knows how to use Google can attest to.
- Dah00n 6y agoFor those of us that apparently don't know how to use Google could you share to add something interesting to the discussion?
- jandrewrogers 6y agoVirtually every country in the developed world has much lower LTCG taxes than income taxes. It is so ubiquitous that I'm not even aware of a counter-example. Quite a few countries in western Europe have lower max LTCG rates than Silicon Valley has today. Instead of making a low-effort post, you could have done a single Google search with any of the obvious keywords and discovered this yourself.
- gamblor956 6y agoTax lawyer here. Virtually every country in the developed world has much lower LTCG taxes than income taxes. It is so ubiquitous that I'm not even aware of a counter-example. Quite a few countries in western Europe have lower max LTCG rates than Silicon Valley has today. That's simply false. The US has the lowest effective individual capital tax rates in the world outside of tax shelter countries. When I was at a firm, I had many (former EU) clients who came to the US who marveled at how low our taxes were here in CA compared to what they were paying at home.
- ac29 6y agoThat isnt the point, the point was that capital gains taxes are lower than general income taxes. For example in Germany its 25% capital gains vs 42% general income (the latter is a progressive rate, but 42% starts at 58k/116k eur single/married). Yes, those rates are higher than the US, but capital gains taxes are lower than wage income taxes. https://taxsummaries.pwc.com/germany/individual/income-determination https://taxsummaries.pwc.com/germany/individual/income-deter...
- arisAlexis 6y agoAre capital gains taxes lower in real estate investing? (I'm not an American)
- nyxtom 6y agoIf you're investing in real estate you can do what's called a 1031 exchange to ultimately defer capital gains from the sale of one property - as you are merely exchanging one investment property for another. Unless you are actually selling the property for cash then you don't necessarily have to pay capital gains since you're acquiring a new loan at the time of sale.
- arisAlexis 6y agoSo you start with a small apartment and you end up with an apartment complex and still you don't pay any cap gains eh. Nice loophole?