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There are ~1T in capital gains realized every year, roughly. If you increase long term rate from 20%, to roughly 40% (top income rate), you'll generate roughly

There are ~1T in capital gains realized every year, roughly. If you increase long term rate from 20%, to roughly 40% (top income rate), you'll generate roughly 200B a year in additional revenue. Of course changes in tax law will alter behavior, but we can say likely 100-150B+ per year. We can assume the large majority of these gains are from those above the 1m threshold. Facebook is doing ~60B in buybacks this year. Taxing that at 20% nets 12B a year in revenue from Facebook alone. Dollar amount of total market buybacks is much higher, obviously. So we can say this likely generates 100B+ per year. SALT deduction alone costs 100B/year to reinstate So how does 300-450B a year not cover a 1.5T spending bill over 10 years? What logic are you using to assert this isn't sufficient? Or are you just writing it off without any research?

refurb 5y ago
You need to start putting realistic numbers. First off, if you double the tax rate on capital gains you'll see a dramatic change in behavior. You're not going to capture 75% of the expected, maybe half that. Instead of companies issuing equity, they'll just issue debt instead if it has clear tax advantages for investors. Stock buy backs will end, they'll just pay it out as dividends instead. So $0. SALT deduction has already been capped, no change there. It's like the wealth tax in France that they expected would bring in billions brought in a few percentage of that.
- adam_arthur 5y ago
  I explicitly stated in my response that behavior would change in response to tax policy changes. Why state that as if I didn't lead with that? There's 0 chance that capital gains will drop from 1T to much less than 500B, or that buybacks go to 0. You think people will suddenly never sell their assets because the tax rate is higher? Dividends are already taxed at 20% for most people, yet companies still pay dividends. So why wouldn't they do buybacks at a 20% tax rate? Even if you cut projections in half, it's more than enough to fund. And it seems like you're not aware of the legislation. The budget bill brings back the SALT deduction, which will reduce tax revenue by 100B/year. That single provision alone is almost enough to fully fund the (pared down) bill.
  - refurb 5y ago
    Money will shift from capital gains to other investments. Same with buybacks. I mean, that's why company's do buybacks today, they are tax advantaged. And I don't get why you'd tax stock buyback. That's a key way company's control their equity. Take $10B to buy $10B of their own stock and you'd make them pay $2B in taxes? Really?
    - adam_arthur 5y ago
      Why tax anything? The free market always works better without taxes altering behaviors. The reason you tax buybacks is because you presumably care about wealth inequality. Buybacks by and large are mechanisms to increase the wealth of shareholders in a tax deferred manner. Dividends are not tax deferred. Ideally legislation would differentiate between "operational buybacks" where the buyback is actually justified by fundamentals and "indiscriminate buybacks" where the goal is to increase the value of the equity regardless of efficiency of the buyback. If a company has ROIC of 20% and a cashflow yield of 3%, it's pretty obvious that the buyback is indiscriminate and not rooted in any sense of the best allocation of capital. Of course impossible to differentiate these two things in legislation. But we can say 90% of the money allocated towards buybacks has nothing to do with operational efficiency, and acts more as a tax deferred transfer of wealth to shareholders. From the governments perspective, encouraging dividends over buybacks makes a lot of sense.
  - mrep 5y ago
    Buybacks would absolutely go to 0. If a company has the option to return 100% of their net income through dividends or 80% of their net income through buybacks, why on earth would they do buybacks? US has the same top marginal dividend and cap gains rate so you'd make dividends much more tax efficient as a way to return money to investors [0]. [0]: https://en.wikipedia.org/wiki/Share_repurchase#Tax-efficient_distribution_of_earnings https://en.wikipedia.org/wiki/Share_repurchase#Tax-efficient...
    - adam_arthur 5y ago
      Qualified dividends are taxed as long term capital gains, which is 20% for most. So if you have a 10% buyback tax, they are still more tax efficient than dividends. A 20% buyback tax puts them roughly at par. Dividends are "double taxed" today and buybacks are not. Not sure where you got your information, but it's wrong. Your source confirms what I'm saying, so maybe try reading it again.
rsj_hn 5y ago
I am confused as to how you would tax share buybacks. Also, would you give a credit for share issuance? 1) if company A issues 100 shares in January, and buys back 150 shares in February, then would company A accrue a tax liability on 50 shares, or 150 shares, and how does A's tax liability change? What rate does the liability accrue at? What if it's more than 12 months -- can you bank this somehow? 2) if company A lends $100 to company B, and company B buys $100 worth of company A's shares, then would company B incur a tax liability, and if so, what is the liability? 3) Is this a general tax liability incurred when a company buys shares of any other company? 4) Is this a general tax liability incurred whan a company buys other instruments -- preferred stock, long term debt, etc, of any other company? 5) Does this tax on corporate purchase of financial assets also extend to banks or is it just the non-financial sector? 6) What if a hedge fund buys shares in company A, do they incur a tax liability? 7) Is a company allowed to retire its own debt prematurely under this plan without incurring a tax liability? 8) Can a company do a repo or reverse-repo of its own shares without incurring a tax liability? 9) If instead of buying back its own shares, a company were to buy gold or shares in another company, would that trigger a tax liability? Thanks!

refurb 5y ago

You need to start putting realistic numbers. First off, if you double the tax rate on capital gains you'll see a dramatic change in behavior. You're not going to capture 75% of the expected, maybe half that. Instead of companies issuing equity, they'll just issue debt instead if it has clear tax advantages for investors. Stock buy backs will end, they'll just pay it out as dividends instead. So $0. SALT deduction has already been capped, no change there. It's like the wealth tax in France that they expected would bring in billions brought in a few percentage of that.

adam_arthur 5y ago
I explicitly stated in my response that behavior would change in response to tax policy changes. Why state that as if I didn't lead with that? There's 0 chance that capital gains will drop from 1T to much less than 500B, or that buybacks go to 0. You think people will suddenly never sell their assets because the tax rate is higher? Dividends are already taxed at 20% for most people, yet companies still pay dividends. So why wouldn't they do buybacks at a 20% tax rate? Even if you cut projections in half, it's more than enough to fund. And it seems like you're not aware of the legislation. The budget bill brings back the SALT deduction, which will reduce tax revenue by 100B/year. That single provision alone is almost enough to fully fund the (pared down) bill.
- refurb 5y ago
  Money will shift from capital gains to other investments. Same with buybacks. I mean, that's why company's do buybacks today, they are tax advantaged. And I don't get why you'd tax stock buyback. That's a key way company's control their equity. Take $10B to buy $10B of their own stock and you'd make them pay $2B in taxes? Really?
  - adam_arthur 5y ago
    Why tax anything? The free market always works better without taxes altering behaviors. The reason you tax buybacks is because you presumably care about wealth inequality. Buybacks by and large are mechanisms to increase the wealth of shareholders in a tax deferred manner. Dividends are not tax deferred. Ideally legislation would differentiate between "operational buybacks" where the buyback is actually justified by fundamentals and "indiscriminate buybacks" where the goal is to increase the value of the equity regardless of efficiency of the buyback. If a company has ROIC of 20% and a cashflow yield of 3%, it's pretty obvious that the buyback is indiscriminate and not rooted in any sense of the best allocation of capital. Of course impossible to differentiate these two things in legislation. But we can say 90% of the money allocated towards buybacks has nothing to do with operational efficiency, and acts more as a tax deferred transfer of wealth to shareholders. From the governments perspective, encouraging dividends over buybacks makes a lot of sense.
- mrep 5y ago
  Buybacks would absolutely go to 0. If a company has the option to return 100% of their net income through dividends or 80% of their net income through buybacks, why on earth would they do buybacks? US has the same top marginal dividend and cap gains rate so you'd make dividends much more tax efficient as a way to return money to investors [0]. [0]: https://en.wikipedia.org/wiki/Share_repurchase#Tax-efficient_distribution_of_earnings https://en.wikipedia.org/wiki/Share_repurchase#Tax-efficient...
  - adam_arthur 5y ago
    Qualified dividends are taxed as long term capital gains, which is 20% for most. So if you have a 10% buyback tax, they are still more tax efficient than dividends. A 20% buyback tax puts them roughly at par. Dividends are "double taxed" today and buybacks are not. Not sure where you got your information, but it's wrong. Your source confirms what I'm saying, so maybe try reading it again.

rsj_hn 5y ago

I am confused as to how you would tax share buybacks. Also, would you give a credit for share issuance? 1) if company A issues 100 shares in January, and buys back 150 shares in February, then would company A accrue a tax liability on 50 shares, or 150 shares, and how does A's tax liability change? What rate does the liability accrue at? What if it's more than 12 months -- can you bank this somehow? 2) if company A lends $100 to company B, and company B buys $100 worth of company A's shares, then would company B incur a tax liability, and if so, what is the liability? 3) Is this a general tax liability incurred when a company buys shares of any other company? 4) Is this a general tax liability incurred whan a company buys other instruments -- preferred stock, long term debt, etc, of any other company? 5) Does this tax on corporate purchase of financial assets also extend to banks or is it just the non-financial sector? 6) What if a hedge fund buys shares in company A, do they incur a tax liability? 7) Is a company allowed to retire its own debt prematurely under this plan without incurring a tax liability? 8) Can a company do a repo or reverse-repo of its own shares without incurring a tax liability? 9) If instead of buying back its own shares, a company were to buy gold or shares in another company, would that trigger a tax liability? Thanks!