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There are enough nuggets in here for some interesting discussions. Take the Walton heirs, nearly 100% of their income is long-term capital gains, so they will b

There are enough nuggets in here for some interesting discussions. Take the Walton heirs, nearly 100% of their income is long-term capital gains, so they will basically pay only 20% or less of their income for their entire lives. A doctor would pay around 30%. Is that delta of 10% represent the risk of investing in the market? Looking at the historical data and the US policy, long term investing in the market is basically a sure thing. The tax discount is way too much for the actual risk.

refurb 5y ago
I didn’t think long-term capital gains rate was lower to account for risk, it was to account for:1) inflation, since you pay taxes on nominal not real gains unlike income which has indexed brackets and 2) to incentivize long term investment over short term investment which is taxed at a higher rate.
- megaman821 5y ago
  1) Stocks and real estate are a lot more inflation proof than wages. Their prices already handle inflation. 2) I still think there should be a discount for long-term investing, just that it is too much. They could lower the spread between long and short term investing with almost no consequence.
  - refurb 5y ago
    In terms of #1, it’s the fact you pay taxes on inflation, not just real growth. So if you buy a stock at $100 and sell at $200 ten years later, but with inflation that same dollar is worth $1.50 ten years later, your real return is $50, not $100, but you’ll pay taxes on the full $100 of $20, which means a 40% real tax rate. With income the brackets are indexed to inflation so that issue is removed.
    - megaman821 5y ago
      I get that, but would rather have a $300k salary with a COLA each year or an S&P 500 index fund with an expected return of $300k? There is just no way your take-home income is less with the index fund over a 10, 20, or 30 year period.
      - refurb 5y ago
        Seems like an odd comparison considering your $300k salary would grow over 30 years too. Point is, if you pay taxes on the nominal returns, your tax rate is much higher than the 20% long-term capital gain rate implies.

refurb 5y ago

I didn’t think long-term capital gains rate was lower to account for risk, it was to account for:1) inflation, since you pay taxes on nominal not real gains unlike income which has indexed brackets and 2) to incentivize long term investment over short term investment which is taxed at a higher rate.

megaman821 5y ago
1) Stocks and real estate are a lot more inflation proof than wages. Their prices already handle inflation. 2) I still think there should be a discount for long-term investing, just that it is too much. They could lower the spread between long and short term investing with almost no consequence.
- refurb 5y ago
  In terms of #1, it’s the fact you pay taxes on inflation, not just real growth. So if you buy a stock at $100 and sell at $200 ten years later, but with inflation that same dollar is worth $1.50 ten years later, your real return is $50, not $100, but you’ll pay taxes on the full $100 of $20, which means a 40% real tax rate. With income the brackets are indexed to inflation so that issue is removed.
  - megaman821 5y ago
    I get that, but would rather have a $300k salary with a COLA each year or an S&P 500 index fund with an expected return of $300k? There is just no way your take-home income is less with the index fund over a 10, 20, or 30 year period.
    - refurb 5y ago
      Seems like an odd comparison considering your $300k salary would grow over 30 years too. Point is, if you pay taxes on the nominal returns, your tax rate is much higher than the 20% long-term capital gain rate implies.