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I recently came across this comment by Philip Greenspun: “if you bought an asset for $10,000 in 2000, for example, the BLS says you spent $15,700 in today’s mi
by leephillips 6y ago
I recently came across this comment by Philip Greenspun:
“if you bought an asset for $10,000 in 2000, for example, the BLS says you spent $15,700 in today’s mini-dollars; if you sell it for $15,000 in 2021 you’ve actually suffered a loss, but will owe capital gains tax nonetheless” (https://philip.greenspun.com/blog/2021/04/29/economic-wisdom-from-mit-david-autor/ https://philip.greenspun.com/blog/2021/04/29/economic-wisdom...).
I’m not a finance person, and this had never occurred to me. Does he have a point? Should the calculation of capital gains take inflation into account?
- BuyMyBitcoins 6y agoIt would be great for the taxpayer if you could do that but the government would lose out on so much revenue. So I think any such proposal is dead on arrival.
- Consultant32452 6y agoI think it’s important to recognize that taxes are not primarily about revenue. The government can just create/inflate as much money into existence as it wants. All taxes are about behavior control and signaling. We’re either trying to discourage a behavior or signal we’re sticking it to some group or other who is getting taxed. Once you see the world through this lens all of these tax laws make much more sense.
- syshum 6y agoI think it is important to recognize that taxes when used for anything other then revenue are highly unethical and should be opposed by the population
- evo 6y agoI feel like they're one of the only tools we have collectively as a society to counteract "tragedy of the commons"/negative externality situations. Is a tax that brings the financial costs of an action in line with its distributed societal costs that unethical?
- syshum 6y agoGovernment taxation is very very ineffective tool, and rarely accomplishes that goal. I would love for you to cite and example of a taxation scheme in use today that is right now countering an actual negative externality Governments do not have a track record for being trust worthily enough to be placed in charge of controlling externalities, it would inevitably be used to usurp power, and liberty from the people, while unjustly enriching their political allies. This happens time and time again yet people still believe government is not only the "best" way to control things, but more stockily believe it is the "only" way to do so despite 1000's of years of historical record proving otherwise
- dontreact 6y agoWhat are alternatives to controlling negative externalities? My understanding is that they are by definition not fixable by the free market, and anything that is not the free market is government essentially.
- ghostwriter 6y agoprivatise everything so that the owners are able to sue those who negatively impact their assets https://www.washingtonexaminer.com/if-you-want-to-save-the-elephants-privatize-them https://www.washingtonexaminer.com/if-you-want-to-save-the-e...
- fighterpilot 6y agoHow would that work for air pollution?
- Consultant32452 6y agoHow would suing them work?
- fighterpilot 6y ago
- wonminute 6y agoFederal Government, maybe. But State and Local do not have this option.
- gizmo686 6y agoIt is also part of fiscal/monetary policy. Sure, the government could increase the money supply. but if the amount of spending they want to do is greater than the amount they want to increase the money supply by, they need some way to reconcile the two, which taxes provide.
- karl11 6y agoAbsolutely. But really there should not be capital gains tax as it is double taxation - you have already paid income tax on the same dollar.
- bigbillheck 6y agoPlease read up on the difference between 'profit' and 'revenue'.
- endisneigh 6y agoI don’t think you understand how capital gains work... If you invest a dollar today and get ten dollars tomorrow you’ve gained 9 dollars. When were you taxed for that?
- enahs-sf 6y agoI think his point was the initial dollar you invested was at some point subject to income tax to get it.
- Jtsummers 6y agoThe (now gray) comment talks about being double taxed. That is, taxed twice for the same money. If I invest $100 (post-tax money) and sell the investment at $1000, I do not pay taxes on that $100. There is no double taxing. I do pay taxes on the $900 gain.
- foobiekr 6y agoThe problem is the gain may exist in nominal terms only. It’s possible to make a 100% nominal gain, which will be taxed, even if in inflation adjusted terms you lost 90% of the actual value in the process.
- medvezhenok 6y agoThe double taxation that some people talk about is actually corporate profits being taxed, and then that money being further taxed as capital gains / dividends - but I don't think that 's a fair criticism either.
- ShockedUnicorn 6y agoIsn't that the same way it works for buying stocks? I don't live in the US, but if I buy stocks for 100$, then sell them five years later for 150$, I have to pay a percentage of the winnings (so a % of 50$). This means that if inflation was more than what's left over after the taxes are removed then I would effectively "lose" money.
- leephillips 6y agoYes, he was in fact talking about stocks.
- tartoran 6y agoLet's be clear though, if your stock grows as little as that such that after paying capital gains on profits and adding inflation into the equation would leave you on the negative or even, then it's a pretty bad performing stock.
- CameronNemo 6y agoWhy? What if I buy stocks with the intention of preservinpreserving wealth rather than growing my net worth? In such a case I am just trying to keep up with inflation with as little risk as possible, but the tax policies in place are forcing me to take on more risk. I can't just take a stake in a basket of goods and call it a day. I have to beat the risk free market substantially.
- tartoran 6y agoWith that return your risk may be 0 but a guaranteed loss is what you choose. If you want to preserve wealth and want to beat inflation go with mutual or index funds, they go up and down with the market and the market beats inflation and appreciate quite a bit more. Or bonds.
- CameronNemo 6y agoAll of those are what I had in mind. All of those incur capital gains tax, with the exception of perhaps some govt bonds (which have low yields).
- ihsw 6y agoIt sounds like the government is double dipping -- printing money to fill budgets and therefore causing inflation, and taxing capital asset sales whose prices are rising as a result of inflation.
- foobiekr 6y agoHe has a point. Imagine capital gains in a sustained high inflation period. Even if your investment exactly tracked inflation you’d end up with a very substantial nominal gain, and LTCG uses the nominal value.
- syshum 6y agoWe will not have to image that, it coming sooner than most people think
- fighterpilot 6y agoI don't understand the point since he'd still be better off than if he just held cash. What am I missing?
- mrgordon 6y agoThink of it this way, they could have bought something for $10,000 at the beginning but now that $10,000 item would cost $15,700 and they only have about $13,810 or less depending on state tax. (That assumes a 23.8% tax rate on the $5000 in “gains”) So assuming whatever they bought doesn’t degrade, it would have been better to buy it in the beginning rather than invest and make less than inflation after tax
- aazaa 6y agoYes, he has a point. Just treading water with respect to inflation triggers a tax bill. I doubt the cap gains calculation will ever tax real gains rather than nominal gains.
- ska 6y ago> Should the calculation of capital gains take inflation into account? Isn't this one of the justifications for cap gains rates typically (jurisdiction dependent) being lower than regular income?
- AnimalMuppet 6y agoNot that I've ever heard. The only justification I've heard is that long-term investing is good for the overall economy, and therefore should be encouraged.
- ska 6y agoI could swear I've heard it brought up but I'm not on top of these discussions, so who knows.
- bpodgursky 6y agoAnd as reduced down, it essentially gives the Fed the ability to seize 20% (soon to be 40%) of all property in the name of the IRS, by printing arbitrary amounts of money (which the Fed board can do independently of congress) to blow up the nominal "capital gains" on any asset, triggering capital gains tax. It hasn't been an issue historically, in an era of hawkish fed leadership, but this year... we'll see.
- procombo 6y agoBingo. Your comment likely won't gain traction here, but it is definitely going to be an interesting decade!
- grumpitron 6y agoWhat you're describing is a wealth tax, not capital gains. Capital gains taxes are applied to gains on capital, not to held property.
- bpodgursky 6y agoThat's the point! Inflation causes fake capital gains on held property, which then turns into a wealth tax if you ever try to exchange the asset for another one!
- grumpitron 6y agoIt does not turn into a wealth tax. A wealth tax is a tax on the entire value of the property. A capital gains tax is a tax on the gains. The only, extremely narrow situation in which they’re the same for a particular investment is when someone has a $0 cost basis on their investment. Runaway high inflation will have them trend closer to one another, but we don’t have that.
- bpodgursky 6y agoThe "runaway high inflation" is exactly what I'm saying is a possibility. But it's not even necessary. Capital gains is a LOT compared to any proposed wealth tax, _and_ it affects most people (as opposed to the "billionaire tax"). 2x inflation (which is very plausible over a decade) translates into a 10% wealth tax, even at 20% cap gains. 4x inflation is 15%. Those are real numbers!
- vineyardmike 6y agoIf you had 10k in 2000 then didn't invest, in 2021, you'd lose even more money due to inflation than if you invested. Because cash obviously doesn't grow with inflation. You're only option to "get ahead" is to pick a better stock :)
- jukabo 6y agoBut there’s a risk associated with picking stocks. These taxes keep poor people poor. They will never get ahead.
- CameronNemo 6y agoAlso there is always the standard deduction, and I think at the federal level there is even 30k on top of that you can take in LTCG without any taxes. So not a luxurious lifestyle, but certainly enough to survive. I don't think WA is doing that though. They probably have a much lower threshold when the capital gains tax sets in. Edit: just read a bit closer and WA is exempting the first 250k in gains per year. So they are offering an even better deal than the feds.
- lamontcg 6y agoThat is only likely to happen with housing (although not for the past 30 years in anywhere remotely desirable), and the tax breaks on moving your primary residence pretty much address that.
- dragonwriter 6y ago> Should the calculation of capital gains take inflation into account? There is a good argument that capital gains, for fairness, should be taxed the same as other income, on a value calculated by adjusting the basis value for inflation. (Which is very different from maintaining current policy but for adjusting basis value.) But fairness doesn’t seem to be a motivating principle of the existing capital gains tax in the first place. If you look at it as an effort to encourage the shortest possible “long-term” holding, the existing policy makes perfect sense.
- imtringued 6y agoIn the current economic climate the US is in? Nope. In Turkey? Absolutely. US has too much savings and there is strong pressure to get rid of the excess savings. Turkey has the exact opposite problem, people stop saving in Turkey and they need as many incentives as possible.