Net Capital Gains Tax Would Approach a Whopping 60%
As I noted on April 23, under Biden’s proposal Net Capital Gains Tax Would Approach a Whopping 60%.
Four Comments By Shortsighted Readers
- I’ll complain when I’m the one being taxed.
- Mish, tell me if it impacts someone with $60K in annual income and $12K in short-term capital gains. If it doesn’t, go screw yourself!
- Great if the plan is passed! Party time for the Top .3% is over!
- Why should investment be advantaged over labor?
The first two comments above remind me of (fill in your own blanks: They came for the ______ and I did not speak up. Then they came for the _____ and I did not speak up. Then they came for me and _____.
Let’s Play Tax Q&A
Q: Put a 60% tax on capital investments and what happens to investment?
A: Investment in new businesses will plunge.
Q: Put huge taxes at the state level and what do people do?
A: They move.
Q: What happens to neighborhoods, even states, when the wealthy flee?
A: Think Illinois
It is not the poor who invest in new businesses. And at a 60% tax rate it will not be the wealthy either!
Investment Decisions
Bonus Question: Who said this?
“The tax on capital gains directly affects investment decisions, the mobility and flow of risk capital from static to more dynamic situations, the ease or difficulty experienced by new ventures in obtaining capital, and thereby the strength and potential for growth of the economy.”
If you guessed Ronald Reagan, try again. In fact, if you did not know the answer, I doubt it would be one of your top 5 guesses.
Bonus Answer: “Public Papers of the Presidents of the United States, John F. Kennedy, 1963“.
Would a 60% Rate Raise Money?
The WSJ addresses that question in The Dumbest Tax Increase.
As former Federal Reserve Governor Larry Lindsey explains nearby, a 43.4% federal rate will cost the government money.
The Congressional Budget Office says the revenue-maximizing rate for capital gains is about 28%. Other economists say it’s lower, and many think the ideal rate is zero. No one outside the fever swamps thinks it is more than 40%, much less the 55% or more that would apply in high-tax states if the Biden proposal becomes law.
As rates rise, Americans tend to hold on to their assets longer, reducing realizations. CBO has found that for each 1% increase in the capital-gains rate, there is a 1.2% reduction in realizations. Raise the tax as much as Mr. Biden wants, and realizations will fall significantly. The higher rate will cost the government revenue.
Why Do Something So Stupid?
The WSJ quotes Lindsey “punishment for its own sake.”
This is what happens when you turn your economic policy over to Bernie Sanders and Elizabeth Warren. Envy is in the political saddle, and Joe Biden is going along for the ride.
More Reader Comments
One of my economically literate readers accurately noted the envy angle. Others noted capital flight.
Another commented that Biden added trillions in debt in just a few months commenting “Even 100% capital gains tax won’t pay for all this.”
As discussed above it would not pay for anything but would negatively impact investment and therefor jobs.
Spook the Stock Market
In addition to the above, a hike of that proportion could and in my estimation likely would spook the markets.
It certainly would make future investments in the US stock markets less attractive than foreign markets.
Looney Ideas and Fearless Fools
And if the proposed legislation did pass, it would be a clear indication that the looney wing of the Democratic party lead by Elizabeth Warren was in full command.
To fund their crazy ideas, tax hikes would not stop with the wealthy. Either that or inflation would soar, perhaps both.
The fearless fool who said, “I’ll complain when I’m the one being taxed,” would then complain about tax hikes on him, how his neighborhood went to hell, or how the stock market decline hurt his investments.
Tax Reform Needed
I am totally in favor of tax reform.
I was against Trump’s cuts because of the way they were structured.
They did not benefit the middle class, they did increase the deficits, etc.
I am against these absurd proposals on their own demerits. I will write up an outline for a good tax plan later.
Meanwhile, Biden’s proposals are hugely foolish from many standpoints.
Mish
George Reisman – In Praise of the 1%: link to mises.org
I just read this:
I sure hope we don’t lose the 1031 Exchange provision, for the precise reason mentioned by Mike Berney, the guy who was interviewed for this piece.
““It’s the best way for an individual to build equity,” Berney said. “It’s a shame that the politicians wrongly portray 1031 exchanges as a tax loophole for the wealthy.”
It sure is…..and he’s also right about the false narrative being promoted here.
“Smaller-scale investors won’t be hit by the changes since the provision, sometimes referred to as a 1031 exchange because of its tax code designation, would continue to be allowed for proceeds below $500,000.”
That part is bullshit. Only newbie RE investors with little equity will be “unaffected”. And they WILL be affected in the sense that their ability to really build MUCH future equity will be seriously curtailed. I’m a very small scale investor, and it will hit me very hard. Sorry Bloomberg. That dog won’t hunt.
This definitely WOULD just push more people into stocks….because it will be the only game left in town.
I also take exception to this:
“What’s the case for reform?
Simply put, that it unfairly benefits wealthier Americans who can afford to make large investments. Middle-class families, meanwhile, are never likely to own many assets outside their own homes and 401(k)s.”
They should add one more phrase. It should read:
” Middle-class families, meanwhile, are never likely to own many assets outside their own homes and 401(k)s….and now they NEVER WILL, because one more door to a better life is being closed for middle-class people FOREVER.
I can’t think of a better way to KILL any possibility of upward mobility in this country than to do what Biden wants to do.
I would suggest resetting long term capital gains to a longer hold period. lengthen short term holds and see if that stops the crazy market gyrations and robotic trading at nanosecond speeds. Or have a 80% cap gains on any trade that flips within 1 second. Have 50% on cap gains within 6 months. For longer term holds hold it where it is. We basically have too much thrash in the system and big players are generating money(spoof, bots, colocated spy trading) for doing nothing for the general economy
Why all the complaining? THIS IS WHAT YOU VOTED FOR
Let’s Play Tax Q&A
Q: Put a 60% tax on capital investments and what happens to investment?
A: Investment in new businesses will plunge.
WHAT DOES INVESTMENT HAVE TO DO WITH FED DISTORTED/SUBSIDIZED CAPITAL MARKETS? IT’S NOT INVESTEMENT. IT’S NOT CAPITAL. ITS GAMBLING.
Q: Put huge taxes at the state level and what do people do?
A: They move.
FAIR ENOUGH.
Q: What happens to neighborhoods, even states, when the wealthy flee?
A: Think Illinois
WHAT HAPPENS WHEN YOU SUBISDIZE THE RICH TO GET THEM TO MOVE TO YOUR PLACE?
LONDON, NEW YOUR CITY, SAN FRAN…THEY RUIN THE PLACE AND YOU CAN’T AFFORD TO LIVE THERE.
TAX THE RICH OUT OF EXISTENCE. RETURN OUR NATION TO WORKING FOLK.
What happens when you tax the rich at 91%?
A SUSTAINED ERA OF PROSPERITY…LIKE AMERICA.
28 years ago , the wrong wingers said…the same about the Clinton tax increases. The economy boomed, and that boom lasted until March 2001. There were fiscal surpluses and real wages went up for everyone. Thus, the Doomsayers are wrong ! wrong!
Yes, it is standard right-wing scaremongering stuff. After their disastrously failed predictions of claiming for years, nay, DECADES that tax cuts for corporations and the rich will get them to “invest” in the economy and cause wealth to gush down to the average Joe, they are now doing the same fearmongering from the other side – “if you take back the tax cuts that did zilch for the average working guy, then very bad things will happen to the economy and to the average folks”. Yeah, rrrrrrrright!
Median household income (inflation adjusted) has NEVER been higher than it was under Trump.
It would be one thing if the wealthy were actually investing in productive enterprises but that is not what is happening. There is no investing going on – it’s just looting by the rich. Jeff Bezos? Elon Musk? You are crying for them?
Mish is a “registered investment advisor for SitkaPacific Capital Management”, hardly a disinterested third party. Try to get someone to accept something that goes against their self-interest- very difficult to achieve.
If you had said Mark Zuckerberg you’d have a bit more of a point since Facebook doesn’t really do or make anything.
Musk is at least trying to bring the Electric Car market to fruition when no one else was. Even if Tesla ultimately fails the gains in battery tech and the fact that other car makers are now taking electric seriously is a net positive. So he’s definitely investing.
Bezos has built a very profitable company. He took the old Sears Catalog model and brought it to the modern age via the internet. He’s invested in a whole lot of warehouse tech, website/database tech in an effort to delivery products to consumers at cheaper prices. So he’s also investing.
Both Musk and Bezos are investing billions in new businesses. In fact, they are competing with each other in space—have you heard of SpaceX and Blue Origin?
They could invest that same money into this planet instead of trying to find another Earth that doesnt exist.
How ya gonna keep ’em down on the farm
After they’ve seen Paree’
How ya gonna keep ’em away from Broadway
Jazzin around and paintin’ the town
How ya gonna keep ’em away from harm, that’s a mystery
They’ll never want to see a rake or plow
And who the deuce can parleyvous a cow?
How ya gonna keep ’em down on the farm
After they’ve seen Paree’
You haven’t seen Paree’ I see.
Did you stop taking your meds again ?
“I am against these absurd proposals on their own demerits. I will write up an outline for a good tax plan later.”
You’ve done this in the past years and to the best of my knowledge, Congress has failed to follow any of your suggestions. Why do you think this time would be different?
The bottomline (AGAIN) is that stuff needs to be fixed, which costs money and the money has to come from someplace that isn’t viewed as a political liability to the politicians.
of course they won’t listen
But that does not mean I have to accept their garbage plans
Of course no one should accept the status quo. It’s always good to have hope. But the reality is that until money is taken out of politics, the people with the money funding the politicians are going to get the tax breaks that WORK FOR THEM.
This is the subject you should be writing about and everyone should be focusing on. Until this changes, nothing of substance is going to change.
It would be a brave move to make this change. I have written on it before here and elsewhere. We would need almost total public funding of all politicians professional or wannabe (with some qualification of course). Perhaps small contributions of under say, $1000 could be allowed. And the campaign season would need to be reduced to some reasonable number, perhaps two months long, like some other countries. PACs would be forbidden. Buying advertising for candidates would be forbidden. Etc., etc.
This would step on a lot of toes, bring pain to a lot of stakeholders. But the alternative is we continue these cycles where Dems raise taxes and Pubs cut them and the tax code continues to grow.
I think you should run for office or try to become an adviser to Romney. I am serious.
FWIW, if you aren’t trying harder to change the system, then you do have to accept their plans. Maybe writing a blog on it just isn’t going to change anything. I think you would have a lot of support in Utah and elsewhere.
Wealthy retires with little income will forgo the risks of stocks at elevated long term capital gains taxes when high yield muni funds pay close to 4% tax free.
If enough pile into them, they won’t be paying 4% anymore.
The vast majority retirees will be withdrawing from 401ks which will be taxed as income rather than the ridiculously low rates the 1% pay on investments.
link to politico.com
Not rich? Good news: You’re probably getting a tax cut.
If we compare ourselves to Europe we see that in Europe the wealthiest individuals have their wealth from brick-and-mortar operations for the most part. In the US they are almost all from tech and that difference did not come about by chance. Nor was the difference in reaction times and resource availability between that of the US and Europe during the Covid pandemic a question of luck. The US was able to dominate high-tech because low capital gains taxes in alliance with highly liquid and deep financial markets created a perfect environment for rewarding innovation and attracting talent. In the ‘60s and ‘70s we had a lower income inequality but we were also living off of past achievements. Our factories were old and our technology falling behind Europe and Japan. The tax rates de-incentivized risk-taking. Tech advances were coming out of government labs but less elsewhere because it didn’t pay.
It wasn’t working so after throwing ourselves into a deep recession to kill the ‘70s inflation lower taxes were tried and it worked. A new financial-industry-entrepreneur ecosystem developed that set up a virtuous circle where risk was rewarded and audacious ideas encouraged and the money a-go-go was there to invest. The good result is that we dominate tech and we will dominate space. The bad result is that the wealth became too concentrated. The pendulum has to swing back somewhat to get more of the wealth spread around and I believe it will and I believe that some distribution is necessary but if the pendulum swings too far left then we lose the dynamic. Some people would just love to see that happen. I don’t want the US to be like Europe where the richest person makes his money selling Gucci handbags. I prefer the people who make their money thinking up new things that will impact everyone’s lives for centuries to come. I prefer the US because we think big and we go about doing it
Sorry but it is hard to feel bad for someone making a million on investments paying 20% while those making 60k are paying 28.6% on every dollar the earn over that, getting to pay what they should. Income should be income. The investor class has been tax advantaged for decades and it only has given us greater wealth inequality, as expected.
BTW Mish: I am interested in seeing how you would reform the current tax laws in especially the case that the investor class is currently given a huge advantage over the working class. Seems like the government picking winners and losers with the current taxing scheme. We all know who the winners are.
Did you ever heard that people loose their investments?
That’s right. No one earns 20% on an investment without a significant risk that they lose the entire investment.
Yes, please!
Cancel hiiiiiiim!
Focus on what needs to be achieved – better infrastructure, jobs, debt reduction.
Focus on doing that with a minimum of Government friction.
How? Offer advantages to those investing where the money is needed and penalise other uses of capital that don’t help achieve those aims.
The Money will go where its treated best. Keep Gov hands off the money, encourage private money to flow where needed.
If the private sector had solutions for infrastructure they would have already come up with them. Truth is infrastructure requires companies to take less profit. This why public private partnerships work so well in other countries because they are a partnership and compromise.
Capital can be encouraged to flow there if the alternative is punative.
You were against the Republican tax cuts under Trump, now you’re against reversing them even partially?
I was against them because of the way they were structured. Did not benefit the middle class, increased the deficits, etc. I am against these absurd proposals.
I will write up a genuine tax plan later. I am not against all hikes, if there is genuine accompanied reform.
OK
Why don’t you run for office from Utah keep become an adviser to Romney.
These are just proposals. Biden knows that. He knows most of these will go nowhere. He also knows that he has to strike a middle ground. Biden’s ego wont get in the way of anyone which makes him the ideal president of the times. McConnell will have to come to the table sooner than later. 2022 is not looking good for the Republicans now using ninjas to recount votes in Arizona.
I agree with Mish. I have no problem with tax increases, but they need to be done intelligently, and they need to not be accompanied by even bigger increases in spending.
Will the Biden tax plan end up including a repeal of the SALT deduction cap, as a gift to the rich who live in blue states (the biggest donors to the Democratic Party)?
Ironically this was one of the few things Trump did that really taxed the rich and left everyone else (middle and lower) classes alone.
Even though I would benefit slightly from it’s repeal it would be better if it wasn’t repealed because it generates a lot of money that would then have to come from some other tax.
I was in a bracket that would supposedly get whacked by the salt removal but nothing changed. Net taxes went up by $0. The only thing the salt removal did was funnel more money to red states from blue states. I think salt wont come back because property taxes in red states have skyrocketed. My parents are liable for as much tax on a 250k home in texas than I am on a $1M home in California. People are going to be in for some sticker shock on their property taxes this year in the south
“My parents are liable for as much tax on a 250k home in texas than I am on a $1M home in California.”
It is all trade offs; in Texas they have no state income tax. Judging by the latest changes in the Census, Texas is persuading a lot more people than California.
One should also be more precise about what is an “investment”. This can be buying stocks whose value is increased mostly only by actions of the central banks. What is the proportion of such “investments” ?
Maybe a better tax would be a tiny one one each transaction.
The wealthy already pay a hugely disproportionate amount of taxes. To most, whatever they pay is not enough.
Wrong! Taking ALL taxes into account (not just the federal income taxes, but state income taxes, FICA taxes, property taxes, auto taxes, excise taxes etc. etc.) we already have a more-or-less flat tax.
That is not even remotely true for the bottom 50%.
The bottom 50% often get way more back in taxes than they pay in, even including all those FICA, property etc taxes.
The rich by far pay the majority of taxes in the USA.
Then the wealthy should give their money away to less wealthy or even poor people.
They already do. THe wealthy of America are by far the most generous.
They give because they can. I’d argue it’s better to give by choice than by force. A choice doesn’t build resentment.
Judging by the skyrocketing net worth, they’re takin’ a looooot more than they’re givin’.
Yes , that’s logical.
Who gives away all their gains? Do you? I’m betting not.
But statistically, the richer someone is the higher percentage they give away.
I have no problem with the poorer getting a higher quality of life if the rich get richer.
Both are improvements.
And the American poor are the richest poor people in the world. IF they were a country (the bottom quartile) they’d be the ninth richest country in the world.
Do a simple internet search before posting something asinine. The top 1% pay 40% of all income taxes.
And you learn to read before posting something asinine! I said “…Taking ALL taxes into account (not just the federal income taxes, but state income taxes, FICA taxes, property taxes, auto taxes, excise taxes etc. etc.)”. That is a lot of taxes in addition to income taxes.
The US is slightly progressive (tax-wise) factoring in all taxes paid. Which makes it more progressive than almost every other country.
From a policing perspective alone, what costs more to protect? My 10 year old pickup, few guitars and a bicycle, or the multitudinous assets that form Bill Gates’ empire?
I’ll believe the wealthy are overtaxed when they stop getting wealthier.
KidHorn: To most, whatever they pay is not enough.
Whirlaway: Wrong!
OK, then tell us: How much should the rich pay in taxes?
The rich are small potatoes compared to the corporations. So, sure, they will to pay higher taxes, like for instance, a 50% bracket for incomes above 10X median income. But the big fish is the corporations.
Every additional dollar a corporation is taxed will be passed on to consumers.
I have no problem with taxing corporations, though you have to keep in mind that it is a somewhat regressive tax. Corporations themselves can’t “pay” taxes, because they don’t substitute taxes for consumption, since they aren’t consumers. Corporations, however, are very effective tax collectors. What most people forget is that about 20-40% of the price of every item they purchase is actually going to pass through the corporation and end up in the hands of one taxing entity or another.
Corporations, in addition to income taxes, also pay property taxes, personal property taxes, payroll taxes, sales and use tax, excise taxes of one form or another, and so on. Those become a cost of doing business, and they build it into their price. So, the cool thing about taxing corporations is that consumers end up paying the tax, and don’t even realize it. What I like about it is that even people whose income comes from illegal sources have to pay these hidden taxes; there is no avoid them.
“The wealthy already pay a hugely disproportionate amount of taxes. To most, whatever they pay is not enough.”
Hugely disproportionate” is YOUR belief. I would disagree.
The wealthy make and have the vast majority of wealth in the US. Therefore, they should be taxed at a high(er) rate.
Those who voted Democrat or encouraged others to vote that way should not be surprised at what you get. You voted for higher taxes, absurd fiscal policies and political correctness and you got them. Some of you wanted that so you are happy and I can understand that. Others had the misconception that the Democrats once in power would somehow be moderates. You were wrong.
I would vote for a conservative who isn’t a nutcase. Got any ideas?
I still feel like off-loading Trump, who was a loose cannon and a demagogue of the first water, was the primary goal in the last election, and I’m damn good and glad he’s gone.
What we need is some re-alignment around some core conservative issues that make sense, as opposed to the typical political footballs…..abortion, religion, gun “rights”, race, etc, etc.
US politics is experiencing a lot of upheaval still. I’d recommend looking at this video for just a few minutes starting at 1:35 to see who is in what camp right now. A lot of conservatives have no home at the moment.
The problem is there is no political party for someone who is financially conservative and morally liberal.
It’s either financially and morally conservative or financially and morally liberal.
Yep. You nailed it. Which is why I don’t fit in either party.
Well you have the Republican party with is financially liberal while in power and morally conservative as the Taliban. So there’s that. Of course they get financially conservative when the other party is in power, just to make sure they fail. Rinse and repeat. I don’t think I have ever seen a Republican administration lower the deficit in the modern era. Please give me an example.
BTW: The Trump administration was in the perfect position to decrease the deficit at the late stage of the economic cycle. Instead they went for a give away to the rich expanding the deficit to over a trillion per year.
Thanks for the video Eddie. I have all of Zeihan’s books except for the last and he has good analysis of global trends. I do not Like Trump but you have to use what you have on hand and not the ones you wish for but do not have. I used to be Democrat but I have watched the party turn more and more to the left till it had no remaining shred of common sense. With Biden I am sorry to see that the deterioration has continued. I have my eye on a few Republicans who understand the risks and prefer to see one of them over Trump. We will see. In any case I am through with the Democrats. They are a busted flush now and have been seduced by the sirens of socialism and even worse.
Have you read George Friedman’s latest book “The Storm before the Calm”? It has a similar look on what is happening.
“The problem is there is no political party for someone who is financially conservative and morally liberal.”
That someone you describe is known as a Libertarian. Rank-choice voting (like they now have in Maine and in many Mayoral elections) is needed to break out of the two-party system.
Unfortunately the Libertarians seem to attack kooks… but I haven’t looked in a while. A lot are showing up in the GOP, maybe they’ve left the LP.
You are on the same page as my friend and mentor Michael Phillips, who wrote The Seven Laws of Money. You might like his blog, “Pro Commerce”. He is a good guy who knows more about San Francisco than anybody I know. In his day he was a mover and shaker there.
I have not read Friedman’s book, or Zeihan’s books for that matter, although I have had the intention. I need to get those. I follow everything Zeihan puts on YT.
Thanks Eddie. I will look him up.
I’m more a of Liz Cheney conservative, even though she is Darth Vader’s daughter. DeSantis seems to be one of the ones likely to try to make more hay off Trump-style populism, which I find pretty scary.
I think he is definitely on the short list for the Republican nomination for 2024, regardless.
I never vote in school board elections, but yesterday I made an exception to vote against some local QAnon woman. They’re still out there.
I don’t like political dynasties in principle. The sons and daughters of politicians are usually second-stringers that got where they are simply because they had their doors opened for them. Their exceptions but they are rare in my opinion.
There are exceptions I meant to say
You talk about wanting a fiscally conservative, morally liberal politician and then describe yourself as a Liz Cheney conservative? Wow! She’s about as morally liberal as…Dick Cheney. That’s disappointing to hear.
Dick’s thinking? Grab people from their home country, throw them in Guantanamo, torture them for years and see what happens. Sometimes they die, sometimes not, but who cares, just another third world citizen not entitled to Constitutional protection.
1.Liz Cheney is not Dick Cheney. I voted against Dick, so don’t blame me for his crimes.
I like her because she is isn’t a Trump retard, and she’s stood up against them, not because I consider her a perfect candidate.
“Morally liberal” is your term, not mine.
I noticed Caitlyn Jenner is trying to brand herself as “socially liberal and fiscally conservative”. I don’t know if it will work, but I think it’s smart from a marketing perspective.
There is a place for people who are conservative but get turned off by the current GOP bloc made up of pro-life Evangelicals who believe in angels…..and hardcore 2nd Amendment guys who want to carry their AR’s to the grocery store, and Tea Party asshats who vote for the likes of Dan Patrick.
My favorite conservative was Texas House Speaker Joe Strauss….and he retired from the legislature. I keep wondering if he’ll ever run for higher office. He’d be far better than ANY current Texas Republican, in just about any office I could think of. I like him way better than Liz.
Rubio carried my district in 2106 in the primary. There are people who still want to vote for a guy like that, not that I ever loved him. I did prefer him to Ted Cruz, however. I preferred Trump to Cruz until he won and tried to make himself king.
This idea that I see bandied about here quite frequently, the myth that the Republicans are just DONE….that’s silly. If these tax proposals pass. I expect a huge backlash. Out in the real world, when people find they’ve been lied to and their taxes start going up up too, and not just for the “real rich” the way Old Joe explained it, the Republicans will come back very strong.
I hate the auto-correct function that keeps changing my typing.
What do you think of Tim Scott as a candidate? Very impressive performance tonight!
I didn’t see it, but we are now completely dependent on the Republican Party to save what’s left of the country. I hope the GOP can be retaken by people with brains. I am not particular about the color of anybody’s skin.
After four years of worrying about having a POTUS with no real ethics or morals, I am now just as worried about a POTUS who wants to make us into a society that will have all the upward mobility of Cuba.
Hey, appreciate your response. I too can’t stand Trump, and think it is great that Liz Cheney stood up to him, along with Mitt Romney and a few others.
‘Morally liberal’ was not my term actually. Texas Tim used it, and your response to his post above was that he “nailed it”. The term doesn’t really matter though, the concept I agree with is ‘live and let live’, that government should not be controlling people’s lives.
Liz Cheney was the primary reason that Trump was unable to get troops out of Afghanistan—she worked with Democrats to keep that from happening. The reality is that Liz Cheney = Dick Cheney on almost every issue, particularly national security issues. He is her primary advisor. There is almost no daylight between him. There have to be better candidates than her!
Thanks for the Cheney lesson. I was lacking in information there. I am no war hawk.
I agree completely with Mish on the USMIC. It’s the unnecessary wars that really bankrupted this country, not social programs. The main problem with the social programs we’ve instated to help the poor, is that they make people dependent forever.
Since we bail out hospitals, we really already have a bastardized form of socialized medicine. It’s just that we don’t bail out patients…they get to to go BR, or carry untenable debt if they get sick. We could do better,
Also, FWIW, I am fine with the stock market crashing. I have assets there but I am not worried about them. Frankly speaking the money needs to come out of the market and go back into other portions of the economy. Until we get some tax bills that favor productivity and not speculation in everything else, it is going to end badly anyway. Right now the pain is going to worse if we don’t come down off the crack hit sooner.
It’s impossible for money to come out of the market.
When I sell you a stock for $100 all that happens is you transfer $100 to me. The same amount of money is in the market that is out of the market ($100). All that happened is that I have $100 cash instead of you having $100 cash. That’s why there is no such thing as ‘cash on the sidelines’.
The only way money flows into other parts is if someone makes an investment in that area. But people will only make investments if they see an opportunity for a return on that investment.
If it becomes more profitable to invest in say small businesses it could happen. Policy matters. If you had a two tier system of taxes between capital gains on stock versus say investment returns in small business the air would come out of the stock market quickly.
Once again, these are proposals. This is a negotiation and even Biden knows it. Biden is letting the process play out as it should. He has spent of lifetime doing this and knows that not everyone gets what they want. He is fine with the left asking for everything because they have that right just as the folks on the right ask for everything and cut taxes and increase the deficit. At some point, we have to ask the question why should we pay for anything ? The people on the right certainly don’t.
The only “fix” needed to Biden’s plan is to have distinction between capital that goes into hedge funds and the stock market directly and capital that gets invested in private businesses. I do expect there will be clauses in whatever gets passed to make that distinction. The uber-wealthy can do whatever they want. In the end I think the country is better off without them if they want to leave. They will end up in the same situation no matter where they go. There are plenty of people who want to become US citizens. If the top 0.4% want to give that up and leave, then so be it. They can join the world of drug lords, oligarchs and other shady businesses to keep hiding their money. At some point, they will end up dead very quickly.
Yes! They can go to a place where the 0% tax rate suddenly morphs into 100% wealth tax, with optional death penalty (and of course, the option would be exercisable by the warlord, not the taxpayer)! LOL
Years ago we knew doctors that retired in mexico. They ended up living next to drug lords and moved back to the US in less than a year. One of them got tired of helicopters bearing down on their neighbors house and not knowing whether it was a competing drug cartel, the government or some other paramilitary junta.
As the Cartels say, “Silver or Lead”?
This post is as wrong as the one about moving to Puerto Rico. So let me start with the last one:
Federal taxes are due regardless of where you live or claim residence. The only way to avoid having to file for Federal taxes is by renouncing to your citizenship. Your taxes are due every year on all your worldwide income etc. So good luck with your PR move. BTW I loved the island.
Now the current post. I’m sick and tired of people saying the investors are the “job creators”. It makes it sound as if they only have the workers in mind when they invest (sure they are all mother Theresa). Also, last corporate tax cut (and representation of money from tax heavens) didn’t increase workers salaries or their benefits. It did, however, went to the CEOs pockets like it has done every time in history. So Mish I call fake news to your last two posts
My taxes have gone up under Obama and Trump however it has had zero impact on anything. There are plenty of tax free vehicles to use to get around all taxes.
Mish please stop with the hysteria. What were cap gains and personal income tax rates in the 1950s? 1960s? 1970s? 1980s? 1990s? All were significantly higher than what we have today and yet… stock market still went up and real GDP growth far higher than anything of the past 20 year.
” stock market still went up and real GDP growth far higher than anything of the past 20 year.”
It was way easier to get GDP growth in the post-WWII boom years than it is today. That’s one thing to consider.
The other thing is that you might want to check the Dow Jones from 1965 until 1982…..on an inflation adjusted basis it dropped steadily for that entire 17 year period.
But wages went up over that period.
Runaway inflation is a scary issue to deal with. But you can see that wages were probably the main culprit as they grew much faster than both stocks and inflation.
The median family income was $6,900 in 1966. Assuming someone stocked away 15% of annual earnings that means in 1966 they would have been saving $1,035 per year.
With no changes to that percentage over time that means the amount saved would have compounded by 8.8% per year based on wage growth. So by 1982, the amount saved jumped to nearly $4,000 a year (almost $10,000 in today’s dollars).
Increasing the savings rate by just 20% of each annual raise (so keeping the remaining 80% for spending purposes) and that 15% increased to 20% of income by 1982 (or almost $6,000 in 1982 terms and $15,000 in today’s dollars).
That’s where investors made up ground from the underwhelming performance in stocks. Remember, the stock market is simply a place to park your savings over time. Most likely, the amount you save will have a far greater impact on your ending portfolio balance than a few extra basis points of investment performance
It’s interesting to note that the 1966-82 period of low stock returns, high inflation, and high wage growth is basically the exact opposite of the current environment of high stock returns, low inflation and stagnating wages.
Peasants seeing income gains for actually doing something productive? The HORROR!
The oddity of it all is if the peasants were granted stock in the companies they worked for, everyone would be better off and there would be less of what has been going on. Imagine.
…but, if the peasants have enough to survive, who will we buy underage women from?
Also from the link below:
*A successful investment plan includes preparing yourself for a number of different scenarios so you don’t overreact when things don’t go as planned.
As always, long-term performance is mostly about your reactions, not necessarily your actions.*
The stock market didn’t go sideways/fall during that era just because wages increased.
I suspect another big reason was that interest rates were 6-20% during that time frame. So why risk investing in stocks when you have guaranteed 6-20% from just leaving your $ in your savings account/buying government bonds.
Now of course interest rates are essentially 0 on savings so you either lose 3% a year via inflation (and no one believes it’s just 3%) or put it in the stock market / real estate and hope a real return.
There were tons of write-offs then so that folks could write down their income to keep from paying the very high rates. The tax code incentivized investment.
Of all the fallacies surrounding taxes, perhaps none is as widespread as the “marginal rates were higher in the 60s/70s and we were fine”. Few account for the large differences in expense deductibility from then until now nor the far higher income levels on which the highest rates were imposed. Tax revenues remained around 16-18% of GDP with 70% top rates and with 28% top rates.
Almost everyone, not just the filthy rich, take capital gains at some point in life…often after holding assets for a very long time and sitting on a lot of equity. This is part the typical wealth “life cycle” for most people, not some aberration.
My friend Dan points out rightly that half of most American’s net worth is typically in their homestead, and it serves as a significant store of wealth that often needs to be cashed out to make the retirement math work at some point…..especially for those of us without some employer sponsored 401K.
For those who citied the 500K capital gains exemption, let me remind you that it didn’t exist until the Clinton years….and it could go away in this kind of “tax everything” political environment.
As someone else pointed out, there will be a stronger impetus for more wealthy retirees with RE assets to put them in trust…..which is never a bad idea, but something I didn’t feel was truly necessary until now. But my view has changed on that.
In many cases the capital gains was just the cost of inflation caused by government polices so not only did they tax the gain caused by inflation (diluting the value of your money) then the inflation caused price rise is taxed when you sell it. The whole government is corrupt beyond repair. Which is why he Founders prohibited taxing income. They were much smarter than the left wing predecessors of the current crazy left-wingers in power that sold the country a realy bad Constitutional Amendment that removed that prohibition..
I don’t see any, what do you call it?, evidence, that any of these assertions are true. The rate went from 15% to 25% in 2013 with no noticeable affect on the stock market or investment.
I don’t see any evidence in favor of the assertion that higher tax rates will generate additional revenue, either. The maximum tax rate was once 90%. Over the last 70 years, the tax code, and the maximum tax rates, have been changed many, many times, yet Federal Receipts as a percentage of GDP have been remarkably constant at about 17%.
Well, even if that ratio has remained at the same level, the internals have changed. Back then, corporations would pay $0.50 in tax for every $1 that people paid. Now, corps pay a mere 9 or 10 cents for every $1 in taxes paid by the people.
And we are the largest most prosperous country on the planet… look around much?
So, you are saying that by reducing the top tax rates from 90% to current levels, we have caused individuals to pay more tax? That’s an interesting claim.
Have you factored in the actions of the FED ZIR on the market. The wealthy and the connected get the money before it is debased and make huge profits, then the final effect is massive wealth transfer from the middle class and the old. If we had a market driven interest rate, the stock market would crash and the USA would be as bankrupt as Illinois before Dementia Joe bailed them out with COVID-19 aid.
Capital gains tax has been plenty higher in our past history, and the economy has grown the entire time. Sorry to say it, but I don’t believe someone who made a living investing can be trusted to see clearly on this subject. Too much personal interest involved to avoid confirmation bias.
Trickle down is a myth.
… and if a rich person has a choice between making 40 cents instead of a buck, or not investing and making nothing, they’re gonna invest.
But that’s not the choice they have.
They could invest elsewhere (other countries) and make say 70 cents instead of 40 cents.
That’s why so much manufacturing and other things went over seas because Capital is not constrained by borders.
Capital gains tax applies to foreign investment. And a big part of Biden’s plan is to shut down foreign tax shelters.
The cost of labor was the main reason manufacturing went over seas.
That’s why slavery has the best ROA.
Do Americans that invest overseas not pay capital gains tax?
Once again@TexasTim65 is spot on
Can you describe how such a move would work, without renouncing American citizenship? And why aren’t people already doing it?
Are you asking how moving to PR lowers your taxes or are you asking how the rich investing overseas lowers their capital gains?
The second… sort of. I don’t understand how you escape capital gains tax by investing overseas if you are still an American citizen.
Most people are awash in debt, and 3 paychecks from losing it all.
I’m going to summarize here rather than make an excessively long post.
Lets say you have 1 million in capital to invest in a business. If you start and run your business here in the US, you have corp taxes (21% currently) and then when you sell your business (either privately or via stock sale if you go public) you’ll pay personal capital gains (lets say 60% for this example if the tax passes) on the proceeds.
Instead you could start (incorporate) your business overseas in Ireland with a 5% (don’t recall exact number but it’s one of the lowest) corp tax rate. So all business profits are immediately taxed a 16% less. That’s a big win. It’s what Apple (and others) were doing for a very long time until Trump lowered the rate so they could bring the cash home at a lower rate. The other thing is when you sell your foreign business you still get the 60% personal gains.
What companies (and individuals do) to get around this is instead take out loans against their foreign cash/business. If it’s say worth 10 million you take a 10 million loan (at a low rate) using the foreign stuff as collateral. That 10 million you borrowed is not taxed since it’s a loan so you pay 0 tax and you have no intention to repay the loan. Again, this is what Apple was doing a few years back when they were taking out billions in loans despite having hundreds of billions in cash in foreign countries. The next part is a bit fuzzy in my mind and@Eddie_T understands this better from his real estate. But either you default the loan early which is a net zero money wise or else the interest payments are tax deductible and you pay those till your tax liability is 0. The net result is no personal taxes paid at all!
Thanks for the expiation. If I understand you correctly, it seems like you’d want to do that for any tax rate over zero.
Stupid BINARY thinking.
The choice is making 70% now or 40% under Biden or 80% in France or 90% in dozens of other countries. Capital in mobil and it can leave and will leave.
I’ll ask again:
Do Americans that invest overseas not pay capital gains tax?
It’s a complicated issue and depends on tax treaties with each individual country.
Lots of people say trickly down is a myth, yet, strangely, virtually everyone, especially the poorest, have a much much higher standard of living than even 30 years ago.
Wages have stagnated but that’s a meaningless stat when you look at the standard of living.
Why has the standard of living increased so much? Investment into technology, reduced building costs (yes they are much much cheaper than 50 years ago), and transference of income to the poor via government benefits (paid for by the rich).
Yes, trickly down actually works. If we keep repeating the myth that it doesn’t people will believe it.
1. “Standard of living” cannot be defined by advances in technology that people are often forced to adapt to, or get left behind. For e.g., a smartphone is an absolute necessity if you are looking for even a 2k/month job, and even after you get the job, many aspects of the job require that you must have the phone.
Much of the expenses that people make to increase the “standard of living” are being funded by increasing debt. Apart from credit card debt, there is the skyrocketing student debt. College education used to be funded at much higher levels by the government even 2-3 decades ago, and was virtually free 4-5+ decades ago.
It is absurd to claim that the “transference of income to the poor via government benefits (paid for by the rich)” shows that trickle-down economics worked! If anything, it is proof that trickle-down economics did NOT work.
No, not at all.
Lower income people have the highest standard of living in the world, compared to other low income people around the world in industrialized nations.
Were the bottom 25% of America’s population a country, it would be the 9th richest country in the world, based on consumption.
The poorest Americans do far, FAR better than any other nation in the world.
Anyone who claims that the American economy has not benefitted the poorest here hasn’t been looking at the actual data.
US poor have more food, larger housing areas, more cars, more technology gadgets and more resources than any other nation on earth.
Yes, some of that is from welfare….but what supports that welfare? The rich do. Not all welfare is government handouts. Much comes from rich people themselves who account for nearly 30 percent of all welfare giving (by choice!).
Trickle down economics works. The US poor are the proof.
No one in the USA goes hungry except by choice or poor planning.
But Trump said mean things and had bad tweets and was a raaaacciiiiiisssst.
Good; I hope this passes. Plenty of people tried to warn you that while Trump wasn’t a Saint he was much better than this clown.
You get what you deserve.
But Trump had mean tweets and said raaaccccisssssttttt things.