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I'm "young" and relatively unexposed to capital gains; I have some index funds, etc -- but I'm not "loaded". Capital gains taxes are purely based on profit;

I'm "young" and relatively unexposed to capital gains; I have some index funds, etc -- but I'm not "loaded". Capital gains taxes are purely based on profit; you can carry over $3k in losses each year, and that's a "common" tactic, to sell losing positions at EoY to reap the $3k benefit (which can carry over if >$3k). Why don't we tax capital gains higher, perhaps average it over 5-10 years even, and continue to allow carryover of losses, etc... ? Surely there's middle-ground here that [most] everyone could support....

ed25519FUUU 5y ago
The thing to remember about tax-loss harvesting is that it delays taxes. It lowers the cost basis on the new assets, which are eventually sold. I did a big TLH in March of last year when the market tanked. Now I have a bunch of assets that just entered capital gains again, but I still have to pay taxes on 75+% gains.
- verall 5y ago
  But if you're a high wage earner, those losses could have offset taxes at a 35% marginal rate, whereas you will pay a lower rate on long-term capital gains. It's not just delaying, it's lessening the marginal rate. As a young person fortunate enough to be highly paid, it seems like a total scam on poorer (non-wealthy) people.
  - ed25519FUUU 5y ago
    You can potentially arbitrage the tax rates, but you can only apply $3k a year of carried losses against income. I don’t think it’s as big as tax avoidance panacea as you’re making it out to be. Not to mention losses must be applied first to gains of the same type. Akso This “loophole” is used widely among middle and mildly upper class, not just rich. For the real wealthy they have other games they can play, such as charitable organizations or “pledged asset loans” which they take out take tax free, and when they transfer the assets and “reset” the cost basis — they can sell the stock at zero profit and pay back the loan.
atlgator 5y ago
Capital gains taxes are paid on NET profit (profit minus losses) for a given year. Yes, if you have a net loss you can carry that forward to future tax years but you also aren't paying any taxes on a net loss. Biden's plan to add another bracket to capital gains tax is the right approach to actually tax the wealthy.
madars 5y ago
The reason against raising capital gains taxes is because the basis is not adjusted for inflation. "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...
- Pfhreak 5y ago
  That's a pretty low yield. That same investment in an index fund over that period is probably worth ~$40k and that's assuming you have no dividends. Kind of a weird example to pick. Also, even if your investment lost against inflation, you still made money. Stuff that $10k into a mattress and you'll have $10k after 20 years.
  - wernercd 5y ago
    and that 10k will be worth less in 20 years. How many loaves of break could you buy 20 years ago? how much land? how much gas? You can buy less of it today with $10k than back then. You'll be able to buy less again in 20 years.
    - Pfhreak 5y ago
      Yes. I understand inflation. I'm pointing out that a $5k return is still income. Compare: Scenario 1: person stuffs $10k in mattress for 20 years. They have $10k at the start, $10k at the end. $0 taxes. Scenario 2: Person invests $10k, makes $5k when they sell after twenty years. $10k start, $15k end. Pays capital gains on $5k. Scenario 3: Person stuffs $10k in mattress, makes $5k in wages on twentieth year. $10k start, $15k end. Pays taxes on $5k. Scenario 2 and 3 are similar, right? Both lose to inflation. The capital gains, however, have a max of 20% taxes.

ed25519FUUU 5y ago

The thing to remember about tax-loss harvesting is that it delays taxes. It lowers the cost basis on the new assets, which are eventually sold. I did a big TLH in March of last year when the market tanked. Now I have a bunch of assets that just entered capital gains again, but I still have to pay taxes on 75+% gains.

verall 5y ago
But if you're a high wage earner, those losses could have offset taxes at a 35% marginal rate, whereas you will pay a lower rate on long-term capital gains. It's not just delaying, it's lessening the marginal rate. As a young person fortunate enough to be highly paid, it seems like a total scam on poorer (non-wealthy) people.
- ed25519FUUU 5y ago
  You can potentially arbitrage the tax rates, but you can only apply $3k a year of carried losses against income. I don’t think it’s as big as tax avoidance panacea as you’re making it out to be. Not to mention losses must be applied first to gains of the same type. Akso This “loophole” is used widely among middle and mildly upper class, not just rich. For the real wealthy they have other games they can play, such as charitable organizations or “pledged asset loans” which they take out take tax free, and when they transfer the assets and “reset” the cost basis — they can sell the stock at zero profit and pay back the loan.

atlgator 5y ago

Capital gains taxes are paid on NET profit (profit minus losses) for a given year. Yes, if you have a net loss you can carry that forward to future tax years but you also aren't paying any taxes on a net loss. Biden's plan to add another bracket to capital gains tax is the right approach to actually tax the wealthy.

madars 5y ago

The reason against raising capital gains taxes is because the basis is not adjusted for inflation. "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...

Pfhreak 5y ago
That's a pretty low yield. That same investment in an index fund over that period is probably worth ~$40k and that's assuming you have no dividends. Kind of a weird example to pick. Also, even if your investment lost against inflation, you still made money. Stuff that $10k into a mattress and you'll have $10k after 20 years.
- wernercd 5y ago
  and that 10k will be worth less in 20 years. How many loaves of break could you buy 20 years ago? how much land? how much gas? You can buy less of it today with $10k than back then. You'll be able to buy less again in 20 years.
  - Pfhreak 5y ago
    Yes. I understand inflation. I'm pointing out that a $5k return is still income. Compare: Scenario 1: person stuffs $10k in mattress for 20 years. They have $10k at the start, $10k at the end. $0 taxes. Scenario 2: Person invests $10k, makes $5k when they sell after twenty years. $10k start, $15k end. Pays capital gains on $5k. Scenario 3: Person stuffs $10k in mattress, makes $5k in wages on twentieth year. $10k start, $15k end. Pays taxes on $5k. Scenario 2 and 3 are similar, right? Both lose to inflation. The capital gains, however, have a max of 20% taxes.