The Capital Gains tax rate to maximize government revenue may be 9.69%, but Obama wants to raise the rates from 15% to 23.8%

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http://iret.org/pub/CapitalGains-2.pdf

Should we lower federal tax revenues so that we have to borrow more money from China in order to charge people a high tax rate? Should we cut entitlements in order to pay for the tax increases?

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Entitlement Society
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Why is 15% not doing any good now when it was 15% from 2003 to 2007?

chilidog
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Quote chilidog:

Why is 15% not doing any good now when it was 15% from 2003 to 2007?

The Obama administration has created so much uncertainty that employers are scared of investing. They have capital, but are uneasy about where to go from here. These aren't just political talking points, but the words from Fortune 500 companies. Europe isn't helping either.

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Entitlement Society
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More record profits than ever recorded in the history of the United States equals uncertainty in the markets. LMFAO!!!!!!!!!!!!!!!!!!

and the next Fox meme is!

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Bush_Wacker
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28% seemed to work pretty well from 1986 to 1989.

chilidog
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Quote Bush_Wacker:

More record profits than ever recorded in the history of the United States equals uncertainty in the markets. LMFAO!!!!!!!!!!!!!!!!!!

and the next Fox meme is!

So record profits are hurting the markets? ROFLMAO

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Entitlement Society
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Quote chilidog:

28% seemed to work pretty well from 1986 to 1989.

It might do even better at 10%.

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Entitlement Society
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20% seemed to work pretty well from 1997 to 2000.

chilidog
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Quote Entitlement Society:
Quote Bush_Wacker:

More record profits than ever recorded in the history of the United States equals uncertainty in the markets. LMFAO!!!!!!!!!!!!!!!!!!

and the next Fox meme is!

So record profits are hurting the markets? ROFLMAO

No, if you actually talk to experts who actually understand the markets they'll tell you it has more to do with what's going on over seas than anything any President does. But that doesn't fit your agenda.

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Bush_Wacker
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Quote Bush_Wacker:
Quote Entitlement Society:
Quote Bush_Wacker:

More record profits than ever recorded in the history of the United States equals uncertainty in the markets. LMFAO!!!!!!!!!!!!!!!!!!

and the next Fox meme is!

So record profits are hurting the markets? ROFLMAO

No, if you actually talk to experts who actually understand the markets they'll tell you it has more to do with what's going on over seas than anything any President does. But that doesn't fit your agenda.

I mentioned Europe in my previous post. Uncertainty when it comes to taxes and regulations in the United States aren't helping. I'm sorry that the facts don't fit your far left economic agenda.

Entitlement Society's picture
Entitlement Society
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Quote chilidog:

20% seemed to work pretty well from 1997 to 2000.

10% would still do better.

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Entitlement Society
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Do you see a trend?

28% good, then not so good.

20% good, then not so good.

15% good, then not so good.

What do we do when we get to 0%?

chilidog
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Jul. 31, 2007 4:01 pm
Quote chilidog:

Do you see a trend?

28% good, then not so good.

20% good, then not so good.

15% good, then not so good.

What do we do when we get to 0%?

The economy goes through cycles. What's your point? That has nothing to do with the capital gains tax rate. This past recession has nothing to do with the capital gains rate.

Entitlement Society's picture
Entitlement Society
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Quote Entitlement Society:
Quote chilidog:

Do you see a trend?

28% good, then not so good.

20% good, then not so good.

15% good, then not so good.

What do we do when we get to 0%?

The economy goes through cycles. What's your point? That has nothing to do with the capital gains tax rate. This past recession has nothing to do with the capital gains rate.

Yes economies go through cyles. It's just as ridiculous to try and tie Obama's whatever it is to the economy as tying capital gaines taxes to it. I really don't see the correlation in either.

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Bush_Wacker
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Quote Bush_Wacker:
Quote Entitlement Society:
Quote chilidog:

Do you see a trend?

28% good, then not so good.

20% good, then not so good.

15% good, then not so good.

What do we do when we get to 0%?

The economy goes through cycles. What's your point? That has nothing to do with the capital gains tax rate. This past recession has nothing to do with the capital gains rate.

Yes economies go through cyles. It's just as ridiculous to try and tie Obama's whatever it is to the economy as tying capital gaines taxes to it. I really don't see the correlation in either.

Ceos have come out and said that there's a ton of uncertainty with regulations and tax policy that is preventing them from doing business right now. That comes directly from this amature administration.

Entitlement Society's picture
Entitlement Society
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Quote Entitlement Society:
Quote Bush_Wacker:

More record profits than ever recorded in the history of the United States equals uncertainty in the markets. LMFAO!!!!!!!!!!!!!!!!!!

and the next Fox meme is!

So record profits are hurting the markets? ROFLMAO

I need to ask. The markets have been in seesaw mode for a little while recently but since 2009 they've gained over 4000 points to the highest it's ever been. How exactly are the markets hurting?

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Bush_Wacker
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Hedge funds pay nothing, they take loans out of their portfolio at about 2% interest rate. It should be considered income, capital gains should be considered income, both should be taxed as income. Both should also be subjected to fica.

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douglaslee
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Eileen Appelbaum
Economic Intelligence (U.S. News & World Report), May 15, 2012

See article on original website

In February, President Obama laid out his framework for reforming corporate taxes. He proposed a substantial cut in the corporate income tax rate from 35 to 28 percent—a boon to companies, especially small businesses that lack the opportunities for tax avoidance that major companies regularly exploit.

As I wrote at the time, the president proposed to make this tax cut revenue neutral so it doesn't increase the deficit. He called for reforming many of the provisions of the tax code that create significant inequities and economic distortions.

Last week, big business responded.

On Wednesday, CEOs of 18 of the nation's largest companies sent a letter to Treasury Secretary Timothy Geithner objecting to the proposal to raise the 15 percent tax rate on dividends and capital gains for households making more than $200,000 ($250,000 if married). These CEOs claim that bringing the taxes of high-income households more in line with everyone else's will reduce investment "when we need capital formation here in America to create jobs and expand our economy." It's a claim that rings hollow. U.S. companies are currently sitting on a mountain of cash that they aren't investing, and many are engaged in buying back their own shares. This artificially raises share prices and serves no useful purpose, but it does increase the value of CEO stock options. The higher taxes might put a crimp in the lavish lifestyles of the wealthy, but they are unlikely to affect the investment behavior of companies. Notably, this change in the tax code would not affect anyone with household income under $200,000 a year or whose money is invested in a 401(k) or an individual retirement account.

And earlier in the week, Ernst & Young put out a report conducted on behalf of the Private Equity Growth Capital Council that challenged the administration's proposal to limit the tax deductibility of corporate interest payments. This change to the corporate tax code would reduce the disparity in the tax treatment of debt and equity financing of investment. The administration did not specify what the limit might be, but Sen. Ron Wyden, a Democrat from Oregon, and Sen. Dan Coats, a Republican from Indiana, have proposed reducing the deduction from 100 percent of interest paid to 75 percent. This provision would have its greatest effect on private equity companies, which engage in leveraged buyouts that use lots of debt to acquire businesses for the portfolios of their investment funds. The ratio of debt to the enterprise value of publicly traded companies is about 14 percent, while companies acquired in leveraged buyouts have a debt-to-enterprise value of about 67 percent.

The Ernst & Young report claims that as a result of the Wyden-Coats tax plan, "the corporate capital stock in the United States would be smaller. … A smaller corporate capital stock would adversely affect worker productivity and, ultimately, living standards." Sounds scary, but is it true?

As Dan Primack observes in his Fortune Term Sheet column, "The implementation of such a proposal need not lead to lower ROI prospects and, thus, less investment. Instead, it simply could result in private equity firms altering their equity-to-debt ratios [to take better advantage of the changes in the tax code]."

"In other words," Primack concludes, they could "put more equity and less debt into deals."

This could be good news for companies and communities. A recent study of 2,156 highly leveraged companies found that a very high proportion experienced financial distress. Default rates among these companies are very high, ranging from 12.3 percent for leveraged buyouts completed in 2001 to 31.6 percent for those completed in 1997. Looking at the recent period, the study found that a quarter of the highly leveraged companies in the study defaulted between 2007 and 2010. Defaults can end in bankruptcy, but even when they don't, they lead to serious cutbacks that negatively affect lenders, customers, workers, and communities.

Not only would the president's proposal to limit the interest deductibility of debt make the tax treatment of debt and equity more equitable, but more equity and less debt would reduce the rates of financial distress and bankruptcy. That would be good news for the communities that depend on these businesses for jobs and services.

Corporations and wealthy households trying to hang onto their unfair tax breaks want to label these changes in the tax code as "job killers." As usual when this claim is made, nothing could be further from the truth.

Eileen Appelbaum is a senior economist at the Center for Economic and Policy Research.

Companies are also taking out loans that are 100% deductible and buying back their own stock to boost the price and increase their pay and value of associated options.

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douglaslee
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Quote Bush_Wacker:
Quote Entitlement Society:
Quote Bush_Wacker:

More record profits than ever recorded in the history of the United States equals uncertainty in the markets. LMFAO!!!!!!!!!!!!!!!!!!

and the next Fox meme is!

So record profits are hurting the markets? ROFLMAO

I need to ask. The markets have been in seesaw mode for a little while recently but since 2009 they've gained over 4000 points to the highest it's ever been. How exactly are the markets hurting?

What are you talking about? They haven't recovered back above 2007 levels.

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http://botc.tcf.org/2011/10/10-reasons-to-eliminate-the-tax-break-for-capital-gains-.html

3. There is little evidence that tax-favored treatment of capital gains has produced broad economic benefits. Advocates of the capital gains tax break have claimed for decades that the exclusion benefits the economy and all workers by encouraging higher levels of investment and savings, which in turn promote growth and prosperity. But researchers have never been able to demonstrate that such connections actually exist. Capital gains tax rates have gone up and down over the years with little apparent relation to economic performance, aside from fleeting effects on realization of capital gains when rates change.

For example, over the period when the top capital gains tax rate declined from 28 percent in 1987, to 20 percent in 1997, and then 15 percent in 2003 (and 0 percent for individuals in lower tax brackets), household savings rates steadily fell as well, defying the advocates' claims. Arguments that preferential capital gains tax rates boost high-risk investments such as venture capital fail to note that those resources are primarily supplied by institutions not subject to capital gains taxes, such as pension funds, college endowments, foundations, and insurance companies. The National Venture Capital Association reported that only 10 percent of investors in venture capital funds were individuals and families who might owe capital gains taxes.

A study by the nonpartisan Congressional Research Service, The Economic Effects of Capital Gains Taxation, concluded: "Capital gains tax rate reductions are unlikely to have much effect on the long-term level of output or the path to the long-run level of output (e.g. economic growth)." Likewise, leading tax analyst Leonard E. Burman found that capital gains rates have displayed no contemporaneous correlation with real GDP growth over the past forty years. He also tested the possibility of lag times in growth effects and found no statistically meaningful correlation for lags of up to five years.

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douglaslee
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Quote Bush_Wacker:

I need to ask. The markets have been in seesaw mode for a little while recently but since 2009 they've gained over 4000 points to the highest it's ever been. How exactly are the markets hurting?

The Dow Jones Industrial Average doubled from its 2009 low.

DOUBLED. Up 100%. In 38 months.

Still 7% below its all-time high...

chilidog
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Jul. 31, 2007 4:01 pm
Quote chilidog:
Quote Bush_Wacker:

I need to ask. The markets have been in seesaw mode for a little while recently but since 2009 they've gained over 4000 points to the highest it's ever been. How exactly are the markets hurting?

The Dow Jones Industrial Average doubled from its 2009 low.

DOUBLED. Up 100%. In 38 months.

Still 7% below its all-time high...

And the fact it's below its all time high is not a good thing. Over half of all Americans are invested.

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Entitlement Society
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9. President Ronald Reagan, the idol of conservative Republicans, was the only president to sign legislation raising capital gains taxes to the same level as income taxes. Most tax experts consider the historic 1986 Tax Reform Act, which was passed with bipartisan congressional support, to be one of the greatest legislative accomplishments of the past fifty years. It rid the tax code of dozens of special loopholes, including the tax exemption for capital gains, while reducing rates on earned income. Bruce Bartlett, who was a senior economic adviser to Reagan, recently wrote: "In the end, the key compromise that made the 1986 law work was Reagan's willingness to raise the capital gains tax to 28 percent from 20 percent in return for dropping the income tax rate to 28 percent from 50 percent." Today's conservatives are the strongest opponents of eliminating the tax-favored treatment of capital gains, but it's instructive to remember that even their hero didn't consider the exclusion to be sacrosanct.

10. As a matter of principle, income from investments should not be treated as more beneficial to society than income from work. The labor each worker engages in contributes directly to the economy day in and day out, while buying, holding, and then selling investment securities is a much more passive undertaking that may or may not add to the nation's productive capacity. A man of leisure who collects $75,000 in capital gains income owes less in taxes than working parents holding down multiple jobs who together earn the same amount. It is long past time to restore a modicum of fairness to the tax code and end the tax-favored treatment of capital gains.

I know the right hates Ronald Reagan that bastion of liberalism, so #9 can be overlooked.

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douglaslee
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Quote douglaslee:

http://botc.tcf.org/2011/10/10-reasons-to-eliminate-the-tax-break-for-capital-gains-.html

3. There is little evidence that tax-favored treatment of capital gains has produced broad economic benefits. Advocates of the capital gains tax break have claimed for decades that the exclusion benefits the economy and all workers by encouraging higher levels of investment and savings, which in turn promote growth and prosperity. But researchers have never been able to demonstrate that such connections actually exist. Capital gains tax rates have gone up and down over the years with little apparent relation to economic performance, aside from fleeting effects on realization of capital gains when rates change.

For example, over the period when the top capital gains tax rate declined from 28 percent in 1987, to 20 percent in 1997, and then 15 percent in 2003 (and 0 percent for individuals in lower tax brackets), household savings rates steadily fell as well, defying the advocates' claims. Arguments that preferential capital gains tax rates boost high-risk investments such as venture capital fail to note that those resources are primarily supplied by institutions not subject to capital gains taxes, such as pension funds, college endowments, foundations, and insurance companies. The National Venture Capital Association reported that only 10 percent of investors in venture capital funds were individuals and families who might owe capital gains taxes.

A study by the nonpartisan Congressional Research Service, The Economic Effects of Capital Gains Taxation, concluded: "Capital gains tax rate reductions are unlikely to have much effect on the long-term level of output or the path to the long-run level of output (e.g. economic growth)." Likewise, leading tax analyst Leonard E. Burman found that capital gains rates have displayed no contemporaneous correlation with real GDP growth over the past forty years. He also tested the possibility of lag times in growth effects and found no statistically meaningful correlation for lags of up to five years.

This article uses arbitrary time frames. It's not serious research. It you look at what I posted it's an econometric paper. I actually once wrote and proved a mathematical formula that shows that as long your investments grow faster than the rate of inflation during a year if you leave your money in an account and tax it, the lower the tax rate, the more the government will collect in the longrun and it's in real dollars.

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Entitlement Society
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Quote Entitlement Society:

as long your investments grow faster than the rate of inflation during a year if you leave your money in an account and tax it, the lower the tax rate, the more the government will collect in the longrun and it's in real dollars.

Are you describing an IRA or 401(k)? Are you assuming that the investor will sell all her investments in one year and therefore pay tax at a higher bracket?

chilidog
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Jul. 31, 2007 4:01 pm

Tax capital gains at least as high as the same rate as income. There is no reason why money extracted by financiers should be given preferential treatment to money earned with a man's labor.

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Phaedrus76
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Quote Phaedrus76:

Tax capital gains at least as high as the same rate as income. There is no reason why money extracted by financiers should be given preferential treatment to money earned with a man's labor.

Not even if taxing it at a lower rate generates more federal revenue? Sounds like blind ideology to me.

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Entitlement Society
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And I read the "report" which is complete and utter crap. His "findings" are in direct opposition to reality.

Specifically..

Taxpayers continue to exhibit significant sensitivity to the tax rate on capital gains in deciding

how much of their gains to realize over time. Behavior in recent years is broadly similar to that

found in earlier studies. The sensitivity to the tax rate is not a one-time fluke related to a few large

tax changes in the more distant past.

--- Investors who are sitting on large portfolios are sensitive to making gains. Period. If they are sitting on a pig that is not earning them gains, they dump it. If they have a big profit, and now that investment has cooled, they move on to the next opportunity.

# This sensitivity appears to be more than a short-run timing issue (moving gains from this year

to next year if the tax rate is scheduled to fall, or from next year to this year if it is scheduled to rise).

It also appears to be more than an "unlocking effect" (the sudden taking, after a rate reduction, of

accumulated gains that have been pent up over time to avoid the old, higher tax rate).

--- Complete bullshit. The entire effect of lowering capital gains is a short run timing issue.

But since we are now talking studies, and trying to maximize revenues, then we can return the top tax rate on income over $20,000,000 to 82%.

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Phaedrus76
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Quote Entitlement Society:
Quote Phaedrus76:

Tax capital gains at least as high as the same rate as income. There is no reason why money extracted by financiers should be given preferential treatment to money earned with a man's labor.

Not even if taxing it at a lower rate generates more federal revenue? Sounds like blind ideology to me.

If lowering the rate more would generate more revenue, then are the 2001/2003 reductions generating much larger revenues in federal collections today? Have those tax reductions lead to a stronger economy, and a broader shared prosperity, a rising tide lifting all boats? Do you want to compare federal revenue per capita of 1996 -2000 to 2005 - 2008? Or income gains of each quintile?

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Phaedrus76
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Fine you know what will happen if u do that? all the corporations will dissolve ad form Llp and sell units instead of stock dorhthe tax is pushed to the investor and it is taxed as income not capital gains.

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CollegeConservative
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Quote Entitlement Society:

http://iret.org/pub/CapitalGains-2.pdf

Should we lower federal tax revenues so that we have to borrow more money from China in order to charge people a high tax rate? Should we cut entitlements in order to pay for the tax increases?

Your study is absurd. Most stock investment has nothing to do with investment in labor and real physical capital. Romney is making 20 million a year for doing absolutely nothing. In fact, to prove he is doing nothing, all his 'assets' are in a blind trust!

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Dr. Econ
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Quote Phaedrus76:
Quote Entitlement Society:
Quote Phaedrus76:

Tax capital gains at least as high as the same rate as income. There is no reason why money extracted by financiers should be given preferential treatment to money earned with a man's labor.

Not even if taxing it at a lower rate generates more federal revenue? Sounds like blind ideology to me.

If lowering the rate more would generate more revenue, then are the 2001/2003 reductions generating much larger revenues in federal collections today? Have those tax reductions lead to a stronger economy, and a broader shared prosperity, a rising tide lifting all boats? Do you want to compare federal revenue per capita of 1996 -2000 to 2005 - 2008? Or income gains of each quintile?

So your evidence against lowering capital gains rate is a small sample size of data that has been affected by countless variables?

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Entitlement Society
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Quote Dr. Econ:
Quote Entitlement Society:

http://iret.org/pub/CapitalGains-2.pdf

Should we lower federal tax revenues so that we have to borrow more money from China in order to charge people a high tax rate? Should we cut entitlements in order to pay for the tax increases?

Your study is absurd. Most stock investment has nothing to do with investment in labor and real physical capital. Romney is making 20 million a year for doing absolutely nothing. In fact, to prove he is doing nothing, all his 'assets' are in a blind trust!

Romney's money in that trust is invested in companies. It's providing them capital to generate new business.

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Entitlement Society
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Quote chilidog:
Quote Entitlement Society:

as long your investments grow faster than the rate of inflation during a year if you leave your money in an account and tax it, the lower the tax rate, the more the government will collect in the longrun and it's in real dollars.

Are you describing an IRA or 401(k)? Are you assuming that the investor will sell all her investments in one year and therefore pay tax at a higher bracket?

No it's a one bracket account.

First you say that you start with x dollars. The rate of return is r, tax rate t, inflation rate i, and n represents the nth year.

You start with x dollars so after 1 year you make x(1+r) dollars. That's then taxed and you keep x(1+r(1-t)) dollars. You start with the 1 so that's not taxed. The amount the government collects after the first year is xrt. For the second year you start with the amount you keep: x(1+r(1-t)) dollars. That grow at a rate of (1+r). So you keep x(1+r(1-t))(1+r-t)=x(1+r(1-t)^2 and xrt(1+r(1-t)) goes to the government. And if you keep doing this there's a patern and you'll see that the government will collect the sum from n=1 to infinite of: xrt(1+r(1-t))^(n-1), but you have to use the rate of inflation to discount each year back to its real value so the formula is:

the sume from n=1 to infinite of: (xrt(1+r(1-t))^(n-1))/((1+i)^n)

And you can use properties from real analysis to see that as you're making more than the rate of inflation, if you leave your money in the account, you want the tax rate to be infinitely close to 0, but not 0 to maximize government revenues as n years goes to infinite.

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Entitlement Society
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Quote CollegeConservative:

Fine you know what will happen if u do that? all the corporations will dissolve ad form Llp and sell units instead of stock dorhthe tax is pushed to the investor and it is taxed as income not capital gains.

I don't have a problem with you posting your right-wing ideologies, but dammit could you please make an effort to MAKE SENSE??!!!

I don't understand who or what you're replying to.

Earned Income is generally taxed at a higher rate than Capital Gains and has been for, like, forever.

I don't know if Exxon can change its structure to be an LLP. But assuming it could, and the result would be something the godless left would not want, guess what? Those laws can be changed, too.

chilidog
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[/quote] "Entitlement Society"

No it's a one bracket account.

First you say that you start with x dollars. The rate of return is r, tax rate t, inflation rate i, and n represents the nth year.

You start with x dollars so after 1 year you make x(1+r) dollars. That's then taxed and you keep x(1+r(1-t)) dollars. You start with the 1 so that's not taxed. The amount the government collects after the first year is xrt. For the second year you start with the amount you keep: x(1+r(1-t)) dollars. That grow at a rate of (1+r). So you keep x(1+r(1-t))(1+r-t)=x(1+r(1-t)^2 and xrt(1+r(1-t)) goes to the government. And if you keep doing this there's a patern and you'll see that the government will collect the sum from n=1 to infinite of: xrt(1+r(1-t))^(n-1), but you have to use the rate of inflation to discount each year back to its real value so the formula is:

the sume from n=1 to infinite of: (xrt(1+r(1-t))^(n-1))/((1+i)^n)

And you can use properties from real analysis to see that as you're making more than the rate of inflation, if you leave your money in the account, you want the tax rate to be infinitely close to 0, but not 0 to maximize government revenues as n years goes to infinite.

[/quote] "anti-Republicon" Well, that certainly makes it perfectly clear. Thank you!

anti-Republicon
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Aug. 21, 2011 10:37 pm

I’m all for certainty. Let all of the Bush tax cuts expire.

The Republicans should say that they will not keep introducing uncertainty into the process by fighting to keep those destructive tax cuts in place.

Uncertainty works both ways. It is ironic that the Repubs accuse the Dems of causing uncertainty when they are the masters of this practice.

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olenzekm
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Quote Entitlement Society:

the sume from n=1 to infinite of: (xrt(1+r(1-t))^(n-1))/((1+i)^n)

The problem with this analysis is that we do not have “infinite” years. If you allow me to use power series going out to infinity I could prove all sorts of things.

As Keynes said, “… in the long run we’re all dead.” You have given new meaning to that phrase.

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olenzekm
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Oct. 26, 2010 11:01 am

Some kinds of economic activity are not good.

The biggest problem with lowering the capital gains rate is that it will further skew the income inequality that is already too great. This is a problem not because of envy, but because too much “hot” money in the hands of the speculating class causes economic bubbles followed by crashes.

That problem is already bad let’s not make it worse!

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olenzekm
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Oct. 26, 2010 11:01 am

After 10 plus years aren't they the bush tax rates ?

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CollegeConservative
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Quote Entitlement Society:

as long your investments grow faster than the rate of inflation during a year if you leave your money in an account and tax it, the lower the tax rate, the more the government will collect in the longrun and it's in real dollars.

Even if we agree this is true, have you accounted for the fact that the government needs to spend this money in 2012 to pay the soldiers, judges, firemen, etc., and will need to borrow the money, and pay it back with interest?

chilidog
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Jul. 31, 2007 4:01 pm
Quote chilidog:
Quote Entitlement Society:

as long your investments grow faster than the rate of inflation during a year if you leave your money in an account and tax it, the lower the tax rate, the more the government will collect in the longrun and it's in real dollars.

Even if we agree this is true, have you accounted for the fact that the government needs to spend this money in 2012 to pay the soldiers, judges, firemen, etc., and will need to borrow the money, and pay it back with interest?

In the long run, each account would be able to pay for all of that. It just depends on how generous China wants to be with letting us borrow, because they no longer lend. However, there's evidence that the government could maximize it's revenue next year by lowering capital gains to 10%. My model is just the basis for where we should tax. What would really happen is the rate of return would have diminishing returns, because all of the successful investments would be bought up by the account.

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Entitlement Society
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Entitlement Society sure has got you guys hooked by the mouth. I thought you guys were a little smarter than that. Why do you let him reel you in?

lovecraft
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Quote Entitlement Society:
Quote chilidog:
Quote Entitlement Society:

as long your investments grow faster than the rate of inflation during a year if you leave your money in an account and tax it, the lower the tax rate, the more the government will collect in the longrun and it's in real dollars.

Even if we agree this is true, have you accounted for the fact that the government needs to spend this money in 2012 to pay the soldiers, judges, firemen, etc., and will need to borrow the money, and pay it back with interest?

In the long run, each account would be able to pay for all of that. It just depends on how generous China wants to be with letting us borrow, because they no longer lend. However, there's evidence that the government could maximize it's revenue next year by lowering capital gains to 10%. My model is just the basis for where we should tax. What would really happen is the rate of return would have diminishing returns, because all of the successful investments would be bought up by the account.

I think you must be assuming that the marketplace is always "correct," every day, in predicting inflation and investment returns. Which it isn't. Treasuries in 1981, Pets.com in 1999, Gold in 2000, Washington Mutual in 2007...

And there's evidence that the government could maximize [it's] revenue next year by RAISING capital gains tax rates. Someone a few months back posted an article by Charles Krauthammer where he referenced a table, by year, going back to the 1960's, and CK was trying to make the same argument that "raising tax rates on capital gains BAD, lowering tax rates on capital gains GOOD" yet several of his years, I particularly recall 1987, did not support such a conclusion.

chilidog
Joined:
Jul. 31, 2007 4:01 pm
Quote Entitlement Society:
Quote Dr. Econ:
Quote Entitlement Society:

http://iret.org/pub/CapitalGains-2.pdf

Should we lower federal tax revenues so that we have to borrow more money from China in order to charge people a high tax rate? Should we cut entitlements in order to pay for the tax increases?

Your study is absurd. Most stock investment has nothing to do with investment in labor and real physical capital. Romney is making 20 million a year for doing absolutely nothing. In fact, to prove he is doing nothing, all his 'assets' are in a blind trust!

Romney's money in that trust is invested in companies. It's providing them capital to generate new business.

That only happens with the purchase of new shares, which is a small part of financial transactions.

I say tax his ass sky high as he is doing nothing anymore to earn that money.

Dr. Econ's picture
Dr. Econ
Joined:
Jul. 31, 2007 4:01 pm
Quote Entitlement Society:

First you say that you start with x dollars. The rate of return is r, tax rate t, inflation rate i, and n represents the nth year.

You start with x dollars so after 1 year you make x(1+r) dollars. That's then taxed and you keep x(1+r(1-t)) dollars. You start with the 1 so that's not taxed. The amount the government collects after the first year is xrt. For the second year you start with the amount you keep: x(1+r(1-t)) dollars. That grow at a rate of (1+r). So you keep x(1+r(1-t))(1+r-t)=x(1+r(1-t)^2 and xrt(1+r(1-t)) goes to the government. And if you keep doing this there's a patern and you'll see that the government will collect the sum from n=1 to infinite of: xrt(1+r(1-t))^(n-1), but you have to use the rate of inflation to discount each year back to its real value so the formula is:

the sume from n=1 to infinite of: (xrt(1+r(1-t))^(n-1))/((1+i)^n)

And you can use properties from real analysis to see that as you're making more than the rate of inflation, if you leave your money in the account, you want the tax rate to be infinitely close to 0, but not 0 to maximize government revenues as n years goes to infinite.

That's bizarre. So if the government doesn't tax you, you get more income, and the more the governmet can tax in the future because you will have more investment.

The problem with your analysis is you are neglecting the disount rate for the government. The discount rate could be risk, or simply the desire to spend currently and not wait till tomarrow.

It is the same problem with a consumer - he could be infinitely wealthy if he saved 100%, but people naturally discount the future, and hence want to consume more today.

Dr. Econ's picture
Dr. Econ
Joined:
Jul. 31, 2007 4:01 pm
Quote Dr. Econ:
Quote Entitlement Society:

First you say that you start with x dollars. The rate of return is r, tax rate t, inflation rate i, and n represents the nth year.

You start with x dollars so after 1 year you make x(1+r) dollars. That's then taxed and you keep x(1+r(1-t)) dollars. You start with the 1 so that's not taxed. The amount the government collects after the first year is xrt. For the second year you start with the amount you keep: x(1+r(1-t)) dollars. That grow at a rate of (1+r). So you keep x(1+r(1-t))(1+r-t)=x(1+r(1-t)^2 and xrt(1+r(1-t)) goes to the government. And if you keep doing this there's a patern and you'll see that the government will collect the sum from n=1 to infinite of: xrt(1+r(1-t))^(n-1), but you have to use the rate of inflation to discount each year back to its real value so the formula is:

the sume from n=1 to infinite of: (xrt(1+r(1-t))^(n-1))/((1+i)^n)

And you can use properties from real analysis to see that as you're making more than the rate of inflation, if you leave your money in the account, you want the tax rate to be infinitely close to 0, but not 0 to maximize government revenues as n years goes to infinite.

That's bizarre. So if the government doesn't tax you, you get more income, and the more the governmet can tax in the future because you will have more investment.

The problem with your analysis is you are neglecting the disount rate for the government. The discount rate could be risk, or simply the desire to spend currently and not wait till tomarrow.

It is the same problem with a consumer - he could be infinitely wealthy if he saved 100%, but people naturally discount the future, and hence want to consume more today.

We don't need a large amount today. This model just shows that you want to wait as long as possible. Defining that time period is tricky. However, this model shows that collecting too much today hurts the amount you can expect to collect in future years.

Entitlement Society's picture
Entitlement Society
Joined:
Jun. 6, 2012 1:45 pm
Quote Dr. Econ:
Quote Entitlement Society:
Quote Dr. Econ:
Quote Entitlement Society:

http://iret.org/pub/CapitalGains-2.pdf

Should we lower federal tax revenues so that we have to borrow more money from China in order to charge people a high tax rate? Should we cut entitlements in order to pay for the tax increases?

Your study is absurd. Most stock investment has nothing to do with investment in labor and real physical capital. Romney is making 20 million a year for doing absolutely nothing. In fact, to prove he is doing nothing, all his 'assets' are in a blind trust!

Romney's money in that trust is invested in companies. It's providing them capital to generate new business.

That only happens with the purchase of new shares, which is a small part of financial transactions.

I say tax his ass sky high as he is doing nothing anymore to earn that money.

By buying shares he's freeing someone else's money to be spent in the economy.

Entitlement Society's picture
Entitlement Society
Joined:
Jun. 6, 2012 1:45 pm
Quote Entitlement Society:

By buying shares he's freeing someone else's money to be spent in the economy.

No, most financial asset trading is not in new shares. It's basically gambling.

Dr. Econ's picture
Dr. Econ
Joined:
Jul. 31, 2007 4:01 pm
Quote Entitlement Society:
Quote Dr. Econ:
Quote Entitlement Society:

First you say that you start with x dollars. The rate of return is r, tax rate t, inflation rate i, and n represents the nth year.

You start with x dollars so after 1 year you make x(1+r) dollars. That's then taxed and you keep x(1+r(1-t)) dollars. You start with the 1 so that's not taxed. The amount the government collects after the first year is xrt. For the second year you start with the amount you keep: x(1+r(1-t)) dollars. That grow at a rate of (1+r). So you keep x(1+r(1-t))(1+r-t)=x(1+r(1-t)^2 and xrt(1+r(1-t)) goes to the government. And if you keep doing this there's a patern and you'll see that the government will collect the sum from n=1 to infinite of: xrt(1+r(1-t))^(n-1), but you have to use the rate of inflation to discount each year back to its real value so the formula is:

the sume from n=1 to infinite of: (xrt(1+r(1-t))^(n-1))/((1+i)^n)

And you can use properties from real analysis to see that as you're making more than the rate of inflation, if you leave your money in the account, you want the tax rate to be infinitely close to 0, but not 0 to maximize government revenues as n years goes to infinite.

That's bizarre. So if the government doesn't tax you, you get more income, and the more the governmet can tax in the future because you will have more investment.

The problem with your analysis is you are neglecting the disount rate for the government. The discount rate could be risk, or simply the desire to spend currently and not wait till tomarrow.

It is the same problem with a consumer - he could be infinitely wealthy if he saved 100%, but people naturally discount the future, and hence want to consume more today.

We don't need a large amount today. This model just shows that you want to wait as long as possible. Defining that time period is tricky. However, this model shows that collecting too much today hurts the amount you can expect to collect in future years.

We don't need a large amount today? We borrowed 1.5 trillion!

Dr. Econ's picture
Dr. Econ
Joined:
Jul. 31, 2007 4:01 pm
Quote Dr. Econ:
Quote Entitlement Society:
Quote Dr. Econ:
Quote Entitlement Society:

First you say that you start with x dollars. The rate of return is r, tax rate t, inflation rate i, and n represents the nth year.

You start with x dollars so after 1 year you make x(1+r) dollars. That's then taxed and you keep x(1+r(1-t)) dollars. You start with the 1 so that's not taxed. The amount the government collects after the first year is xrt. For the second year you start with the amount you keep: x(1+r(1-t)) dollars. That grow at a rate of (1+r). So you keep x(1+r(1-t))(1+r-t)=x(1+r(1-t)^2 and xrt(1+r(1-t)) goes to the government. And if you keep doing this there's a patern and you'll see that the government will collect the sum from n=1 to infinite of: xrt(1+r(1-t))^(n-1), but you have to use the rate of inflation to discount each year back to its real value so the formula is:

the sume from n=1 to infinite of: (xrt(1+r(1-t))^(n-1))/((1+i)^n)

And you can use properties from real analysis to see that as you're making more than the rate of inflation, if you leave your money in the account, you want the tax rate to be infinitely close to 0, but not 0 to maximize government revenues as n years goes to infinite.

That's bizarre. So if the government doesn't tax you, you get more income, and the more the governmet can tax in the future because you will have more investment.

The problem with your analysis is you are neglecting the disount rate for the government. The discount rate could be risk, or simply the desire to spend currently and not wait till tomarrow.

It is the same problem with a consumer - he could be infinitely wealthy if he saved 100%, but people naturally discount the future, and hence want to consume more today.

We don't need a large amount today. This model just shows that you want to wait as long as possible. Defining that time period is tricky. However, this model shows that collecting too much today hurts the amount you can expect to collect in future years.

We don't need a large amount today? We borrowed 1.5 trillion!

We should be cutting wasteful spending and reforming entitlements to lower the debt. Raising taxes on everybody is longterm suicide. There's too many overpaid people in the public sector who aren't carrying their weight. Each employee in the public sector needs to be looked at with cost/benefit analysis.

Entitlement Society's picture
Entitlement Society
Joined:
Jun. 6, 2012 1:45 pm

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Get. Money. Out.

Last week, the United States Senate actually considered a constitutional amendment on campaign finance. Last Monday, the Senate advanced Tom Udall's proposed amendment, which would allow Congress to regulate money in politics. Seventy-nine senators voted to allow debate on the measure.

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