5 ms·

The rules are deeply arbitrary, and goes to the nature of financials as being rather abstract concepts with arbitrary definitions. I buy stock in a firm, that

by gohrt 11y ago

The rules are deeply arbitrary, and goes to the nature of financials as being rather abstract concepts with arbitrary definitions. I buy stock in a firm, that firm makes a lot of profit, but I don't liquidate my position. How is that different (short-term vs long-term gains) from me selling their stock and buying another stock? It's even the same word: A retail business sells its stock (product), and sells it's stock (shares) Ultimately, taxing "realized" gains can never be logical, since "realization" is a fictional concept not grounded in reality. Taxing consumption is relatively straighforward to describe (but hard to implement), and taxing wealth is slightly harder (since it's hard to mark the value of some assets)

eli 11y ago
The difference is the people who make the tax rules want to encourage one kind of behavior over another, regardless of anything else. You're free to think that's a fundamentally bad idea, but it isn't "arbitrary," it's the basic idea of Behavioral Economics.
- ovi256 11y ago
  They could have done that much better with linear interpolation instead of a step function. Today's step function, with made-up tax percentages: 20% if held for less than a year, 10% if a year or more. You end up with a bunch of trades held for a year and a minute. My proposal, with interpolation: 20% if held for less than 6 months 10% if held for 18 months or more Between 6 and 18 months, we interpolate between 20 and 10%. The difference between waiting 364 or 365 days is now minimum. I chose 6 and 18 because they're 12 +/- 6. However, a different curve could be drawn. The idea is to replace the step with a gradual increase.
  - dtparr 11y ago
    That sounds like a nightmare to do without software computing it. I realize you and likely everyone reading this use tax software, but many people still do them by hand, and this would involve an individual tax-rate lookup for each transaction rather than just grouping them into short/long-term capital gains.
    - kbenson 11y ago
      Do any people doing them by hand actually make these investments directly, or do they use intermediaries? Is it that hard to require the intermediaries provide end of year reports? I don't think this level of extra computational burden is a good counter-argument against more sane tax policies in this day and age.
      - MaulingMonkey 11y ago
        > Do any people doing them by hand actually make these investments directly, or do they use intermediaries? Is it that hard to require the intermediaries provide end of year reports? I use an intermediary, but have to report individual stocks nonetheless (fraud avoidance?) And you can only require what they can provide. During tax season, I have to dive through filing cabinets to fish out the cost basis information that's missing on older investments made before they were required[1] to start recording that information, plus double checking splits online to make sure this wasn't a partial sale that I have to calculate the cost basis on. They report what they have on Form 1099-B. Right now you have to file a separate Form 8949 for each combination of: (Short Term, Long Term) x (Reported to IRS & Me via 1099-B, Reported to only Me via 1099-B, Unreported to Me), plus Schedule D, plus maybe Schedule B. Last year that was "only" five pages of tax forms filed for two stock transactions + various dividends, plus a few worksheets that you don't file. I forget if there was a cabinet dive. Given how obtuse tax forms get, a tax-rate lookup for each transaction would probably involve a worksheet per stock, just to do the date time calculation of "how long was this stock held". [1] At least, I think I read they were required to start tracking this.
        bd_at_rivenhill 11y ago
        You have to assume that the brokerage must retain and report the information, otherwise you can lie all you want about your cost basis without any way for the IRS to cross check at scale. If caught in an audit, you can just claim a bookkeeping error; probably not what they want given the lengths they've gone to in order to fill common holes (c.f. the whole "provide a 1099 to pretty much everyone you have a financial relationship with" pile of bullshit).
  - MaulingMonkey 11y ago
    Are you a lobbyist for TurboTax? (I kid I kid... but seriously, are you?)
- brownbat 11y ago
  Well, just to caveat, not everyone who makes the rules is a pigouvian. Some arguments over taxes are actually about finding ways to maximize revenue while minimizing distortions. It's a mix.
tosseraccount 11y ago
I buy a stock for $10. 2 years later, I sell it for $20. I get taxed on a $10 capital gains income tax. How is this not "logical" ? Can you explain better?
- gohrt 11y ago
  You can nest a financial asset arbitrary layers deep in funds and holding companies. See other comments in this subthread that illustrate the various ways to structure assets.
dragonwriter 11y ago
> Ultimately, taxing "realized" gains can never be logical, since "realization" is a fictional concept not grounded in reality. Trading an asset vs. holding it is a non-fictional concept very much grounded in reality. Attributing significance to it is, in a sense, arbitrary in the same sense that any assignment of significance is, but its definitely not a fictional concept divorced from reality.
- jsprogrammer 11y ago
  "Trading an asset" What exactly are you trading? Bits in a database that mark ownership of a fraction of a fictional entity?
  - leereeves 11y ago
    Not a 'fictional' entity; a legal construct (perhaps multilayered) that groups ownership of real assets and/or obligations of real people.
    - jsprogrammer 11y ago
      The fiction is to believe that 'a legal construct (perhaps multilayered) that groups ownership of real assets and/or obligations of real people' is an entity.
      - tghw 11y ago
        You're basically saying that contracts are fictional. Try entering into a contract, then behaving as if it's fictional by ignoring your responsibilities in the contract, and you will quickly find out how real they are.
        jsprogrammer 11y ago
        >You're basically saying that contracts are fictional. Nope (although, that may be true, in some sense), I am not saying that. I am saying the thing many refer to as an 'entity', as in, 'the corporate entity', is a fictional thing. It has no real, inherent or independent physical existence apart from the people that choose to represent it.
justicezyx 11y ago
How can it be arbitrary given the fact is so astoundingly crazy?...
madez 11y ago
“A retail business (...) sells it's stock” How is this to parse? The contraction “it’s” means either “it has” or “it is”. So, the quoted expression expands either way to a syntactically malformed expression with two verbs. Could it be intended to mean the following? A retail business’ (...) sells — it has stock
- gohrt 11y ago
  Its a typo.
  - madez 11y ago
    Ah, okay! Thanks for the clarification. I wondered if there was maybe some kind of arcane colloquial rule I didn't know of.
s73v3r 11y ago
Stockholders who hold less than a year are going to have very different goals for the company than those who hold for several years. That's the difference.

by gohrt 11y ago

eli 11y ago

The difference is the people who make the tax rules want to encourage one kind of behavior over another, regardless of anything else. You're free to think that's a fundamentally bad idea, but it isn't "arbitrary," it's the basic idea of Behavioral Economics.

ovi256 11y ago
They could have done that much better with linear interpolation instead of a step function. Today's step function, with made-up tax percentages: 20% if held for less than a year, 10% if a year or more. You end up with a bunch of trades held for a year and a minute. My proposal, with interpolation: 20% if held for less than 6 months 10% if held for 18 months or more Between 6 and 18 months, we interpolate between 20 and 10%. The difference between waiting 364 or 365 days is now minimum. I chose 6 and 18 because they're 12 +/- 6. However, a different curve could be drawn. The idea is to replace the step with a gradual increase.
- dtparr 11y ago
  That sounds like a nightmare to do without software computing it. I realize you and likely everyone reading this use tax software, but many people still do them by hand, and this would involve an individual tax-rate lookup for each transaction rather than just grouping them into short/long-term capital gains.
  - kbenson 11y ago
    Do any people doing them by hand actually make these investments directly, or do they use intermediaries? Is it that hard to require the intermediaries provide end of year reports? I don't think this level of extra computational burden is a good counter-argument against more sane tax policies in this day and age.
    - MaulingMonkey 11y ago
      > Do any people doing them by hand actually make these investments directly, or do they use intermediaries? Is it that hard to require the intermediaries provide end of year reports? I use an intermediary, but have to report individual stocks nonetheless (fraud avoidance?) And you can only require what they can provide. During tax season, I have to dive through filing cabinets to fish out the cost basis information that's missing on older investments made before they were required[1] to start recording that information, plus double checking splits online to make sure this wasn't a partial sale that I have to calculate the cost basis on. They report what they have on Form 1099-B. Right now you have to file a separate Form 8949 for each combination of: (Short Term, Long Term) x (Reported to IRS & Me via 1099-B, Reported to only Me via 1099-B, Unreported to Me), plus Schedule D, plus maybe Schedule B. Last year that was "only" five pages of tax forms filed for two stock transactions + various dividends, plus a few worksheets that you don't file. I forget if there was a cabinet dive. Given how obtuse tax forms get, a tax-rate lookup for each transaction would probably involve a worksheet per stock, just to do the date time calculation of "how long was this stock held". [1] At least, I think I read they were required to start tracking this.
      - bd_at_rivenhill 11y ago
        You have to assume that the brokerage must retain and report the information, otherwise you can lie all you want about your cost basis without any way for the IRS to cross check at scale. If caught in an audit, you can just claim a bookkeeping error; probably not what they want given the lengths they've gone to in order to fill common holes (c.f. the whole "provide a 1099 to pretty much everyone you have a financial relationship with" pile of bullshit).
- MaulingMonkey 11y ago
  Are you a lobbyist for TurboTax? (I kid I kid... but seriously, are you?)
brownbat 11y ago
Well, just to caveat, not everyone who makes the rules is a pigouvian. Some arguments over taxes are actually about finding ways to maximize revenue while minimizing distortions. It's a mix.

tosseraccount 11y ago

I buy a stock for $10. 2 years later, I sell it for $20. I get taxed on a $10 capital gains income tax. How is this not "logical" ? Can you explain better?

gohrt 11y ago
You can nest a financial asset arbitrary layers deep in funds and holding companies. See other comments in this subthread that illustrate the various ways to structure assets.

dragonwriter 11y ago

> Ultimately, taxing "realized" gains can never be logical, since "realization" is a fictional concept not grounded in reality. Trading an asset vs. holding it is a non-fictional concept very much grounded in reality. Attributing significance to it is, in a sense, arbitrary in the same sense that any assignment of significance is, but its definitely not a fictional concept divorced from reality.

jsprogrammer 11y ago
"Trading an asset" What exactly are you trading? Bits in a database that mark ownership of a fraction of a fictional entity?
- leereeves 11y ago
  Not a 'fictional' entity; a legal construct (perhaps multilayered) that groups ownership of real assets and/or obligations of real people.
  - jsprogrammer 11y ago
    The fiction is to believe that 'a legal construct (perhaps multilayered) that groups ownership of real assets and/or obligations of real people' is an entity.
    - tghw 11y ago
      You're basically saying that contracts are fictional. Try entering into a contract, then behaving as if it's fictional by ignoring your responsibilities in the contract, and you will quickly find out how real they are.
      - jsprogrammer 11y ago
        >You're basically saying that contracts are fictional. Nope (although, that may be true, in some sense), I am not saying that. I am saying the thing many refer to as an 'entity', as in, 'the corporate entity', is a fictional thing. It has no real, inherent or independent physical existence apart from the people that choose to represent it.

justicezyx 11y ago

How can it be arbitrary given the fact is so astoundingly crazy?...

madez 11y ago

“A retail business (...) sells it's stock” How is this to parse? The contraction “it’s” means either “it has” or “it is”. So, the quoted expression expands either way to a syntactically malformed expression with two verbs. Could it be intended to mean the following? A retail business’ (...) sells — it has stock

gohrt 11y ago
Its a typo.
- madez 11y ago
  Ah, okay! Thanks for the clarification. I wondered if there was maybe some kind of arcane colloquial rule I didn't know of.

s73v3r 11y ago

Stockholders who hold less than a year are going to have very different goals for the company than those who hold for several years. That's the difference.