Lets talk about capital gains taxes

[coloradoatheist]

Don dismissed stock price appreciation from the productive use of money by companies in driving efficiency. Though most houses deteriorate somewhat over time, but you are saying that the increase in house prices is because of new carpet?

What are you babbling about? Houses appreciate in price (i.e. capital gains) because the buying public is willing and able to pay more for the house. There are many possible factors that might cause an increase in demand for housing. I cannot imagine why anyone would think that inflation is the sole factor.

And we had this discussion a while ago, and there are several different definitions of inflation. One is the general level of prices on all goods, but you can have specific inflation on one item. If the house that's being sold is the same, but its price is higher, that's inflation. The offset of inflation would be that you are getting a better deal for the higher price. Is a house that's sold later, better than the previous price?

 

[Playball40]

Don dismissed stock price appreciation from the productive use of money by companies in driving efficiency. Though most houses deteriorate somewhat over time, but you are saying that the increase in house prices is because of new carpet?

What are you babbling about? Houses appreciate in price (i.e. capital gains) because the buying public is willing and able to pay more for the house. There are many possible factors that might cause an increase in demand for housing. I cannot imagine why anyone would think that inflation is the sole factor.

It's not.

 

[laughing dog]

What are you babbling about? Houses appreciate in price (i.e. capital gains) because the buying public is willing and able to pay more for the house. There are many possible factors that might cause an increase in demand for housing. I cannot imagine why anyone would think that inflation is the sole factor.

And we had this discussion a while ago, and there are several different definitions of inflation. One is the general level of prices on all goods, but you can have specific inflation on one item. If the house that's being sold is the same, but its price is higher, that's inflation.

Sigh, I see. You really have no point nor interest in actual communication. I apologize for interrupting your soliloquy.

 

[coloradoatheist]

And we had this discussion a while ago, and there are several different definitions of inflation. One is the general level of prices on all goods, but you can have specific inflation on one item. If the house that's being sold is the same, but its price is higher, that's inflation.

Sigh, I see. You really have no point nor interest in actual communication. I apologize for interrupting your soliloquy.

We don't do that with other things. If a gallon of milk goes from $3 to $4 dollars we may analyze why it went from $3 to $4 but it's still inflation on a gallon of milk. It's the same thing with a house that's the same. You didn't criticize Don for calling stock market gains inflation gains.

 

[SimpleDon]

I also would tax them at the same rate as earned income. Capital gains are nothing more than inflation on capital investments. We have just given this type of inflation a different name and branded it as ’good' and the other type of inflation ’bad.' Unless anyone can show that decreasing the tax rate on capital gains has increased investment and that this investment has benefited society, there is no reason for it to exist.

How could it not reduce investment? Higher capital gains tax collections means investors have:

a) less money to invest
b) lower returns on a given investment

But yet private business investment has decreased since the capital gains tax breaks have been introduced, in real terms.

​

Capital gains taxes in red, gross private investment year to year change in green and an 8 year moving average of gross private investment in black to smooth the noisy data. from Angry Bear. The straight lines in green and red are the best fit and show that as the capital gains tax has gone down private investment has also gone down. The moving average of investment peaks in the year of the highest capital gains tax. The horizontal purple line is the period average of year to year growth in the private investment. The best fit of the private investment growth year to year crosses the average line in 1986.

In spite of the decrease in the capital gains tax private business investment has gone down, exactly the opposite of what you assert has to be true.

This is because business investment has nothing to do with the tax rates charged to individuals. Business investment is demand driven, investments aren't going to be made unless there is the demand for the extra product.

 

[dismal]

Capital gains are taxed as income.

There is just a special rate.

Given that we were specifically talking about tax rates, the fact that it's a special rate means it's not taxed as income.

Capital gains are considered income and taxed as income as part of the the income tax. Not sure why you would even debate this as your position is both insufferably pedantic and wrong.

The proposal is still the same. You say income tax is 7.7%, lower than capital gains. So we should encourage investment by taxing capitals gains as if it were income. Do you approve? Or is your claim that income is 7.7% and thus lower than capital gains, suspect in some way?

The US government says the average tax on income is 7.7%, not me. And I already said what I would do reasonably clearly in my last post. You may consider that still in effect.

 

[dismal]

How could it not reduce investment? Higher capital gains tax collections means investors have:

a) less money to invest
b) lower returns on a given investment

But yet private business investment has decreased since the capital gains tax breaks have been introduced, in real terms.

Hey, maybe there was some noise in the system because some other things in the economy changed too.

Do you have any specific logical argument in rebuttal of either of my points?

 

[SimpleDon]

I also would tax them at the same rate as earned income. Capital gains are nothing more than inflation on capital investments. We have just given this type of inflation a different name and branded it as ’good' and the other type of inflation ’bad.' Unless anyone can show that decreasing the tax rate on capital gains has increased investment and that this investment has benefited society, there is no reason for it to exist.

And are you consistant, that the capital gains of houses, which is just a gain of inflation, should be taxed as regular income?

Yes, if we want to. But there have always been exemptions for home appreciation. Currently if you are over 55 you can exempt up to $250,000 of capital gains on your principle home from the tax, twice that if you are married, and at any age you don't have to pay capital gains tax on gains if you roll the gains over into a house that costs more than the one that produced the gains.

The capital gains rate is higher than the income tax rate that most retired people pay. So it would result in lower taxes for those who have to pay it.

 

[laughing dog]

Sigh, I see. You really have no point nor interest in actual communication. I apologize for interrupting your soliloquy.

We don't do that with other things. If a gallon of milk goes from $3 to $4 dollars we may analyze why it went from $3 to $4 but it's still inflation on a gallon of milk. It's the same thing with a house that's the same. You didn't criticize Don for calling stock market gains inflation gains.

I already apologized for interrupting your Cheshire cat soliloquy. I am not going to get in the way of anyone who wishes to post economic claptrap.

 

[SimpleDon]

Why would anyone think that the capital gain from the sale of a house would necessarily just reflect inflation?

Don dismissed stock price appreciation from the productive use of money by companies in driving efficiency.

I am sorry, this came through for me as babel. Stock appreciation only converts into business investment if corporations sell new stock. These are what we call dilutive SEOs, secondary (or supplemental) equity offerings. These are so rare I haven't even seen information on the amount of money that is raised by them. The only reference that I found to them are as being one or two orders of magnitude less than the amount of IPOs, initial stock offerings, which has been averaging about 50 billion dollars a year lately. 99.9% of the capital gains made in stocks don't go to the companies whose stock it is. They are provided by the investor who buys the stock to the investor who is selling the stock.

Most business investment is made by corporations from retained earnings or from borrowing, most often by issuing corporate bonds or from a bank. Corporations will only issue new stock as a last resort. Stock is like a permanent loan that you can never pay off and where the interest rate keeps going up. Both outstanding and treasury stock, stock that the company holds back, is carried as a liability of the corporation.

Though most houses deteriorate somewhat over time, but you are saying that the increase in house prices is because of new carpet?

Capital improvements are deduced from the capital gains realized to decide the amount subjected to the tax.

 

[Axulus]

You seem to misunderstand the reason for the capital gains tax being lower than you want it to be. Investment capital goes to where it earns the best return. Taxes on those returns reduce the total earned so any savvy investor will look for countries to invest where their investments do best. Countries with low capital gains tax and good investment opportunity will attract investment capital from other countries. Countries with high capital gains tax and/or poor investment opportunity will see their country's investment capital move offshore. Investment capital flowing into a country improves that country's economy. Investment capital flowing out of a country will destroy that country's economy.

In order to pay a capital gains tax, there must be some capital gains. A losing investment pays no taxes, so a low tax rate is irrelevant. The incentive to invest is always the prospects of the investment, not the taxes on the profits.

The prevailing wisdom behind the push for lower CGT rates, in recent years, was to spur rich people to invest their capital, and thus grow the economy, which is expected to be reflected by increased employment, which increases income tax revenue, and replaces the lost CGT.

Unfortunately, lower capital gains taxes does not seem to have the desired effect, other than to please the GOP base.

False - return on an investment is far from guaranteed. Reducing the possible rewards/upside of any investment reduces likelihood of that investment.

Think of it as an analogy - for every investment opportunity out there, you have to split 50% of the profits with a partner who does nothing, while you have to put in 100% of the money. Might that night affect your willingness to invest in the first place?

 

[Axulus]

The incentive to invest is the net return on investment. This would include both the prospect of gain and how much of that gain doesn't end up in the investor's pocket because of taxes. Any investor looking to invest in, for example, a new hotel in either a country with no or low CGT or a country with high CGT will invest in the first... if the investor knows anything about economics.

Yeah, I got that. Taxes or no taxes, investors don't put money into losing propositions.

They don't put money into "winning" propositions either if the risk adjusted return is too low. No one who seeks to maximize their returns is investing in a risky asset with expected returns of only 1% greater than inflation with a long term and uncertain payoff. They will, however, do the same for a 10% return above inflation.

 

[coloradoatheist]

What I am trying to understand is this.

If I buy my house for $250K and sell it for $300K I have an extra $50K in my pocket. Capital gains tax if not rolled over

If I buy $250K worth of stock and sell it for $300K I have an extra $50K in my pocket. Capital gains tax is applied, but lower than the highest tax bracket. People want it treated as straight.

Why isn't situation a the same?

 

[Axulus]

What I am trying to understand is this.

If I buy my house for $250K and sell it for $300K I have an extra $50K in my pocket. Capital gains tax if not rolled over

If I buy $250K worth of stock and sell it for $300K I have an extra $50K in my pocket. Capital gains tax is applied, but lower than the highest tax bracket. People want it treated as straight.

Why isn't situation a the same?

The situation may be considered different in that often when someone sells their home, they must find a new place to live. If their home value went up, chances are that any other place in the area that they want to move to will also be more expensive by a similar amount. Not saying that this justifies no tax, but it is something to take into account.

 

[coloradoatheist]

What I am trying to understand is this.

If I buy my house for $250K and sell it for $300K I have an extra $50K in my pocket. Capital gains tax if not rolled over

If I buy $250K worth of stock and sell it for $300K I have an extra $50K in my pocket. Capital gains tax is applied, but lower than the highest tax bracket. People want it treated as straight.

Why isn't situation a the same?

The situation may be considered different in that often when someone sells their home, they must find a new place to live. If their home value went up, chances are that any other place in the area that they want to move to will also be more expensive by a similar amount. Not saying that this justifies no tax, but it is something to take into account.

Except all income is that way. So really the hatred of capital gains is that rich people get this income more, so let's tax it more.

 

[SimpleDon]

Don dismissed stock price appreciation from the productive use of money by companies in driving efficiency. Though most houses deteriorate somewhat over time, but you are saying that the increase in house prices is because of new carpet?

What are you babbling about? Houses appreciate in price (i.e. capital gains) because the buying public is willing and able to pay more for the house. There are many possible factors that might cause an increase in demand for housing. I cannot imagine why anyone would think that inflation is the sole factor.

Inflation is an increase in the price of something. There are a lot of reasons for the price to go up. Capital gains are an increase in the price of capital. There are a lot of reasons for the price to go up. Capital gains is a special case of inflation referring to the increase in the price of capital. It is simple.

There was a time when stock markets were used by companies to raise investment capital. But no more, the amount of capital that is raised for productive investment is pennies out of a hundred dollars of stock market capitalization. The stock market has become a parallel artificial, market where only the relative market capitalization has any relation to the value of the companies but the absolute market valuation has more to do with the total amount of money that is in the market than it does the value of the companies.

Excessive stock valuation can be much more of a negative for a company because the stockholders expect returns in the form of dividends and capital gains to be related to the price that the stockholder paid for the stock, not the initial offering price of the stock, the only money that the company is ever going to receive from the selling of the stock.

These laws have turned corporations into tax havens for the stockholders. I think that it would be much better to let the corporations concentrate on making things or delivering services rather than studying tax law. I would eliminate all of the corporate income taxes and tax the income and the capital gains as the income of the individual shareholders.

 

[coloradoatheist]

What are you babbling about? Houses appreciate in price (i.e. capital gains) because the buying public is willing and able to pay more for the house. There are many possible factors that might cause an increase in demand for housing. I cannot imagine why anyone would think that inflation is the sole factor.

Inflation is an increase in the price of something. There are a lot of reasons for the price to go up. Capital gains are an increase in the price of capital. There are a lot of reasons for the price to go up. Capital gains is a special case of inflation referring to the increase in the price of capital. It is simple.

There was a time when stock markets were used by companies to raise investment capital. But no more, the amount of capital that is raised for productive investment is pennies out of a hundred dollars of stock market capitalization. The stock market has become a parallel artificial, market where only the relative market capitalization has any relation to the value of the companies but the absolute market valuation has more to do with the total amount of money that is in the market than it does the value of the companies.

Excessive stock valuation can be much more of a negative for a company because the stockholders expect returns in the form of dividends and capital gains to be related to the price that the stockholder paid for the stock, not the initial offering price of the stock, the only money that the company is ever going to receive from the selling of the stock.

These laws have turned corporations into tax havens for the stockholders. I think that it would be much better to let the corporations concentrate on making things or delivering services rather than studying tax law. I would eliminate all of the corporate income taxes and tax the income and the capital gains as the income of the individual shareholders.

And I agree with you. But inflation for stock prices can be caused by several things, one of those is productivity. If IBM finds a way to double revenue and costs only go up 90% then they have 10% increase in profit and a stock price that will reflect that. IBM's stock can also go up because there is more money chasing stocks and we have inflation. I asked you about income from house price where an increase in a house price doesn't come from increase in productivity of that house.

 

[skepticalbip]

Inflation is an increase in the price of something.

More properly, inflation is defined as a devaluation of the currency. Things cost more dollars because the dollar has less value.

 

[SimpleDon]

But yet private business investment has decreased since the capital gains tax breaks have been introduced, in real terms.

Hey, maybe there was some noise in the system because some other things in the economy changed too.

Do you have any specific logical argument in rebuttal of either of my points?

It is your job to explain why investment has gone down when capital gains taxes have also gone down. The exact opposite of what you said would happen. You are trying to justify lowering the capital gains tax.

You have used this "other things in the economy changed too" argument before as if there are things unknown and apparently unknowable unraveling all of your favorite policies, preventing them from working. And gosh, you have no idea why but you have faith in your policies and your logic.

I am starting to see why you normally stick to asking questions and very seldom answer any. You suck at answers.

I will accept that you have no explanation for the failure of the tax cuts to produce more investment and to go on.

Yes, I do have an explanation for why your arguments aren't valid and why your beloved tax cuts didn't produced a new flood of investment. It is somewhat scattered among my responses to others and in part included in a section of this post that you responded to that you apparently didn't read. I will start with the last paragraph from my previous post to you,

This is because business investment has nothing to do with the tax rates charged to individuals. Business investment is demand driven, investments aren't going to be made unless there is the demand for the extra product.

Individuals very seldom provide business directly with money to use for investments in the form of capital. They do loan money by buying bonds.

Individuals invest in a company by buying the stock of the company. But buying stock in the company is not providing that company with money for the company to use to improve or to increase production. The capital gains that you encourage by offering a tax cut for are gained not by increasing the production or the productivity of the company, the things that build the economy, but by encouraging the increase in the value of the company's stock.

The capital gains are provided by the person who buys the stock to the person who sells the stock. The company isn't involved and doesn't profit from the increase in the value of the stock unless they are willing to sell some of their treasury stock, stock that they are holding, or if they issue new stock. Both are very rare occurrences. Corporations prefer to finance expansion and productivity increases from retained earnings or borrowing by issuing bonds or going to a bank. None of these sources are taxed by the way.

Issuing stock is the last choice, it is like taking out a permanent loan that can never be paid back. A loan whose interest rate keeps increasing.

So yes, your points are valid, but they encourage investment that doesn't build the economy. They are nothing more than yet another tax cut for the rich, one that requires taxes to be raised on everyone else. Lowering taxes on the rich while raising the taxes on everyone else, along with suppressing the wages of everyone else but the rich, all means that the demand that has to occur before there is productive business investment isn't there.

And this is only going to get worse if your proposal to go from a progressive income tax to a flat rate tax is adopted. This will lower yet again the taxes of the rich requiring taxes to be raised on everyone else, further reducing the demand in the economy.

 

[SimpleDon]

What I am trying to understand is this.

If I buy my house for $250K and sell it for $300K I have an extra $50K in my pocket. Capital gains tax if not rolled over

If I buy $250K worth of stock and sell it for $300K I have an extra $50K in my pocket. Capital gains tax is applied, but lower than the highest tax bracket. People want it treated as straight.

Why isn't situation a the same?

The situation may be considered different in that often when someone sells their home, they must find a new place to live. If their home value went up, chances are that any other place in the area that they want to move to will also be more expensive by a similar amount. Not saying that this justifies no tax, but it is something to take into account.

Yes, the flaw in considering your home as an investment is that you always need a place to live. You can't sell it when the market is high and wait to buy until the market is low.