Economy Biden plans to fix Capital Gains Tax

Really depends on your strategy. The average holding time is less then a year so falls outside of a long term capital gains tax. Most people that this is targeting have the financial means to hold for a very long time.

I disagree that it would be a hard sell. The capital gains tax is constantly changing.
https://taxfoundation.org/biden-capital-gains-tax-rate-historical/
There's an image in there detailing the changes. Plus as seen on here it's hit or miss whether or not people are in favor of it and even less people that actually understand it.

You've said how it wouldn't hurt the markets which I agreed with but you haven't pointed out how this would increase revenue. As I pointed out this will lead to increased holding which in turn leads to less revenue. I think I've also brought up some decent points about how this will influence business owners.

Also thanks for the debate. Fun to discuss this with someone that understands what they are talking about.

Agreed, good chat.

I don't think it will materially affect business owners, I just don't see it.

As to revenue, I don't think it will increase business revenue but it will lift government revenue. Further it will government revenue in a way that will have vastly less implications on the economy than any other measure that could raise such an amount.



Terrible source though, I know you were just pointing to the variability in historical cgt rates but what a horrible article.

I'd suggest the below as a more honest title

Biden’s Proposed Capital Gains Tax Rate Would be Highest for Many (0.3% of households) in a Century (101 years, if you exclude the times when it was higher).
 
I mean a company can negotiate for that but it's going to be harder to negotiate with stock with people that are in demand.

Again agreed but insider profit plays a major factor. Coinbase (coin) recently went to a direct listing (so a higher selloff). So far company insiders are up to 291M sold. As an insider would you push to go public knowing that's going to be cut in half? Coinbase is fairly large and didn't need to raise capital but did so to expand faster. Discouraging companies to go public will hurt the economy.

Don't necessarily agree with the next paragraphs as I think you are ignoring the risks investors take when investing but based off your previous points I see where you are coming from.

But those companies are negotiating on an even playing field. Foreign companies who can motivate CEOs to renounce their US citizenship will have an advantage but that's not many.

As to going public vs private for funding again I am not seeing a material change. Both can be done by simply issuing new shares. In both situations owners can hold or sell as much as they want. Both gains realised will be taxed the same.
 
Agreed, good chat.

I don't think it will materially affect business owners, I just don't see it.

As to revenue, I don't think it will increase business revenue but it will lift government revenue. Further it will government revenue in a way that will have vastly less implications on the economy than any other measure that could raise such an amount.



Terrible source though, I know you were just pointing to the variability in historical cgt rates but what a horrible article.

I'd suggest the below as a more honest title

Biden’s Proposed Capital Gains Tax Rate Would be Highest for Many (0.3% of households) in a Century (101 years, if you exclude the times when it was higher).

Haha honestly I just skimmed the article. I tried to copy and paste the image but I'm on a phone and it was giving me a hard time so I got lazy.

Couple rebuttals below...

Capital gains realization and tax rate:

FF649_2.png


Sorry for the source again but they had a clean image. Google image it and a ton of graphs will pop up but they are all along the same vein. Realizations go up when the tax rate is lower. So people will adjust their strategies and hold.

Federal capital gains tax collections:

page1-2775px-Federal_Capital_Gains_Tax_Collections_1954-2009_history_chart.pdf.jpg


Again you can Google image it and I think it shows pretty clearly that higher rates do not lead to higher revenue for the federal government. The government actually collects more when tax rates are lower and more people realize gains.

The economy and capital gains rate:

50b66f4decad04a36e000008


Again bunch of graphs out there and interpretations but to me it looks like they don't really effect each other.

Please let me know if there are different datasets somewhere but from what I can find raising the capital gains tax will decrease realizations leading to less government revenue and will have no economic effect.
 
But those companies are negotiating on an even playing field. Foreign companies who can motivate CEOs to renounce their US citizenship will have an advantage but that's not many.

As to going public vs private for funding again I am not seeing a material change. Both can be done by simply issuing new shares. In both situations owners can hold or sell as much as they want. Both gains realised will be taxed the same.
Unless all the companies work together and conduct a form of price fixing which is illegal, CEOs are going to be able to negotiate for higher salaries on lieu of stock ownership. They then have less incentive to increase the value of the company which hurts shareholders/the economy.

Yes they will still get funding but now only the absolute richest will be able to invest. Also, I'm actually not sure how private equity transfers like this are taxed. I think it really depends on how they structure the deal. I'd have to look more into it.

https://smartasset.com/financial-advisor/selling-a-small-business-tax-implications
 
Haha honestly I just skimmed the article. I tried to copy and paste the image but I'm on a phone and it was giving me a hard time so I got lazy.

Couple rebuttals below...

Capital gains realization and tax rate:

FF649_2.png


Sorry for the source again but they had a clean image. Google image it and a ton of graphs will pop up but they are all along the same vein. Realizations go up when the tax rate is lower. So people will adjust their strategies and hold.

Federal capital gains tax collections:

page1-2775px-Federal_Capital_Gains_Tax_Collections_1954-2009_history_chart.pdf.jpg


Again you can Google image it and I think it shows pretty clearly that higher rates do not lead to higher revenue for the federal government. The government actually collects more when tax rates are lower and more people realize gains.

The economy and capital gains rate:

50b66f4decad04a36e000008


Again bunch of graphs out there and interpretations but to me it looks like they don't really effect each other.

Please let me know if there are different datasets somewhere but from what I can find raising the capital gains tax will decrease realizations leading to less government revenue and will have no economic effect.

It's all good just had to call out the terribly misleading article.

I agree short term people will just hold but they simply can't do that forever. At some point the piper must be paid. People will game/time the system which the first graph shows, with the biggest effect on realised gains being the change in a rate, ie before it goes up or after it goes down.

It's true people affected by this could hold forever but this would effectively deprive them of any benefits of these gains.
Sure their net worth will increase but you can't eat unrealised gains, you can't use them for anything, it's all just "probably" till you realise it.

Sure some rich people will make themselves worse ofg through an idealogical opposition to paying tax, everyone loses there but no one more than the person who worked hard, risked much just to avoid paying tax. These people are out there but they are not the norm and would be working against the advice of a proper professional.

As to the 2nd graph that looks like the value of the S&P500 would pretty closely mimic the cgt raised. Again people timing gains in response to changes in rate but fundamentals drive the long term trend.

Last graph I'm not seeing much correlation at all.

If enacted I expect a surge in realisations before it starts, a decline over several years (largely a result of the surge), and realisations to normalise after Biden’s successor makes it clear it's staying.



https://en.m.wikipedia.org/wiki/Buffett_Rule

Obama talked about 30% for those earning over 1 million,
"If enacted, the rule change would result in $36.7 billion per year in additional tax revenue ($367 billion over the next decade), according to a January 2012 analysis by the Tax Foundation"

Yeap them again.
 
Unless all the companies work together and conduct a form of price fixing which is illegal, CEOs are going to be able to negotiate for higher salaries on lieu of stock ownership. They then have less incentive to increase the value of the company which hurts shareholders/the economy.

Yes they will still get funding but now only the absolute richest will be able to invest. Also, I'm actually not sure how private equity transfers like this are taxed. I think it really depends on how they structure the deal. I'd have to look more into it.

https://smartasset.com/financial-advisor/selling-a-small-business-tax-implications

They wouldn't work together but all would be subject to the same rules. All boards would similarly incentivised to tie CEO remuneration to performance. I am really not seeing much affect here nor a reason for the absolute highest paid CEOs to get a tax break.

That article talks extensively about the non productive work done to access the favourable CGT rates which produces nothing.
 
It's all good just had to call out the terribly misleading article.

I agree short term people will just hold but they simply can't do that forever. At some point the piper must be paid. People will game/time the system which the first graph shows, with the biggest effect on realised gains being the change in a rate, ie before it goes up or after it goes down.

It's true people affected by this could hold forever but this would effectively deprive them of any benefits of these gains.
Sure their net worth will increase but you can't eat unrealised gains, you can't use them for anything, it's all just "probably" till you realise it.

Sure some rich people will make themselves worse ofg through an idealogical opposition to paying tax, everyone loses there but no one more than the person who worked hard, risked much just to avoid paying tax. These people are out there but they are not the norm and would be working against the advice of a proper professional.

As to the 2nd graph that looks like the value of the S&P500 would pretty closely mimic the cgt raised. Again people timing gains in response to changes in rate but fundamentals drive the long term trend.

Last graph I'm not seeing much correlation at all.

If enacted I expect a surge in realisations before it starts, a decline over several years (largely a result of the surge), and realisations to normalise after Biden’s successor makes it clear it's staying.



https://en.m.wikipedia.org/wiki/Buffett_Rule

Obama talked about 30% for those earning over 1 million,
"If enacted, the rule change would result in $36.7 billion per year in additional tax revenue ($367 billion over the next decade), according to a January 2012 analysis by the Tax Foundation"

Yeap them again.

No major disagreements on your assessment. You are right, if they keep these rates people will eventually be forced to sell. I just don't see that happening based off the history of rate changes and the political disagreement on these types of taxes. And if we are looking at the short term (short being relative as these are all long term) federal revenue is going to decrease based on the historical charts above.

Yea I noticed that it tracked the s & p as well. Pretty interesting. You could try to make the correlation between market cap and lower cg rate. To be clear, I'm not, at least not without more data. Just a thought.

Haha yes they have some pretty cool content. I saw similar figures for the new Biden plan. The problem is that they are basically just taking the numbers from previous years and applying the new tax to it. They aren't considering how the new rates will effect investor strategies.
 
They wouldn't work together but all would be subject to the same rules. All boards would similarly incentivised to tie CEO remuneration to performance. I am really not seeing much affect here nor a reason for the absolute highest paid CEOs to get a tax break.

That article talks extensively about the non productive work done to access the favourable CGT rates which produces nothing.
All boards are already incentivised to tie CEO compensation to performance and we still see many complaints about CEO salary. This is going to exacerbate that issue. I don't think there's a way to tangibly prove it and overall it's a minor issue.

Again I'm not as well versed on this but produces nothing for who? An owner definitely stands to make more money going public over remaining private.
 
All boards are already incentivised to tie CEO compensation to performance and we still see many complaints about CEO salary. This is going to exacerbate that issue. I don't think there's a way to tangibly prove it and overall it's a minor issue.

Again I'm not as well versed on this but produces nothing for who? An owner definitely stands to make more money going public over remaining private.

Going public can make it easier to raise capital but it's possible to do so privately as well.

It's really a question of seeding control, public you can't control the ownership nearly as well as you can if still private.

Below are Americas largest private companies and their revenue in billions per year.

Cargill (MN) 113.5
Koch Industries (KS) 110
Albertsons (ID) 60.5
Deloitte (NY) 46.2
PricewaterhouseCoopers (NY) 42.4
Mars (VA) 37
Ernst & Young (NY) 36.4



The considerable man hours and brain power that goes into transferring what is realistically income into the lighter taxed capital gains does nothing of society as a whole.
 
An owner definitely stands to make more money going public over remaining private.

This is not true, if looked at purely as an exit strategy.
Public companies get taken private frequently, and usually at a significant premium to the share price.

It really depends if the buyer is large enough to take a significant stake and is willing to pay more for more control.
 
And why would I work my hardest to improve the company's value if I'm getting paid the same either way?

Because that's your job and why you get paid more than everyone else. Anyone thinking like you're suggesting is a poor choice for the position.
 
"High risk, high reward" was in reference to a company's management taking stock options in lieu of higher salaries. This incentives them to increase the value of the company because their compensation is directly proportional to the company's value. As a company's value goes up and it expands it has a direct positive impact on the economy, creating drives, increasing tax revenue, etc etc. By increasing the tax, you are discouraging the stock options route. As an executive why would I take the riskier stock option when it is going to be taxed as the same as my salary? And why would I work my hardest to improve the company's value if I'm getting paid the same either way? Not to mention this is going to drive down IPOs based on the same principles above.

For the next paragraph, I get what you are saying but you are still using abstract concepts instead of what is happening in reality. For example, if I want to the extremes you are using I could point out that a lower income person could just invest in the market and get a 0% tax rate up to 80k. That's 80k tax free. Why aren't they? Cause the market is not garunteed.
you can still have that high reward, just pay as much as everyone else.

you can say it's not guaranteed, and it's a calculated risk, but a lot of the times, it works out, and when it works out, it should be fair. Starting a business is a risk, going to school is a risk, everyone takes risks, it dont mean anything.
 
Because that's your job and why you get paid more than everyone else. Anyone thinking like you're suggesting is a poor choice for the position.

Eh. Yes but it is human nature to work harder on something if you get compensated more. It's why a ton of companies offer bonuses. More value to the company comes with greater compensation.
 
you can still have that high reward, just pay as much as everyone else.

you can say it's not guaranteed, and it's a calculated risk, but a lot of the times, it works out, and when it works out, it should be fair. Starting a business is a risk, going to school is a risk, everyone takes risks, it dont mean anything.
Pay as much as everyone else? I think you are missing a ton of the intricacies going on here. Heff and I actually covered a ton of it but they do pay the same as everyone else when talking about income. The only time they are paying less is when it comes to long term gains on investments. Meaning they risked their own capital, held for a year, made a profit and sold, in excess of 1M (income).

Yes it works out sometimes depending on how and what you invest in and doing the proper research. Or paying someone to do it for you. Most money mangers I've seen charge about 1% of your account. Again why isn't everyone doing it? As I pointed out to Heff, long term gains tax under 80k are taxed at 0%. Why hasn't everyone quit their job and started investing? 80k tax free is a little over 100K if you were just bringing in income.

It should be fair? Every risk" you just mentioned comes with huge tax/loan/risk benefits. You can claim 3k on taxes each year and roll it over but thats not a ton of money.
 
Pay as much as everyone else? I think you are missing a ton of the intricacies going on here. Heff and I actually covered a ton of it but they do pay the same as everyone else when talking about income. The only time they are paying less is when it comes to long term gains on investments. Meaning they risked their own capital, held for a year, made a profit and sold, in excess of 1M (income).

Yes it works out sometimes depending on how and what you invest in and doing the proper research. Or paying someone to do it for you. Most money mangers I've seen charge about 1% of your account. Again why isn't everyone doing it? As I pointed out to Heff, long term gains tax under 80k are taxed at 0%. Why hasn't everyone quit their job and started investing? 80k tax free is a little over 100K if you were just bringing in income.

It should be fair? Every risk" you just mentioned comes with huge tax/loan/risk benefits. You can claim 3k on taxes each year and roll it over but thats not a ton of money.
I dont buy it. a CEO can get options as part of comp, and that can be manipulated a ton.....

if you want to raise cap gains for under 80K, that's not a hill I'm gonna die on, have at it. Short term traders take much more risks than capital gamers, and they are taxed like normal. We are talking about very wealthy people that are gaming these systems, you need millions to make such gains, to a point, that it can be much more profitable making money a certain way, but you've got to have pretty damn good amounts of capital to school such a system.
 
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