Dixie, we agree upon
“People out there who have the wealth to invest, weigh the options, consider the risks, and factor in the rates of taxation, or possibility of increased taxation in the near future, and they make a decision whether to use their money as venture capital, or keep it invested in securities”.
Before the government put its fat thumb on the scale, final rate of investment returns were generally determined by open competitive markets. I’m opposed to government intervention that is of no particular advantage to our nation. You don’t share my confidence in competitive open markets?
This isn't about competitiveness of open markets, it's about reward vs. risk, and people who are extremely smart with money, making decisions based on what is most lucrative for them. If capital investment is going to be treated the same as regular income, a smart person may as well keep their money locked away in securities, because the reward becomes less worth the risk the higher the cap gains tax rate is.
Again, I point you to my example of the bus driver and the trip to NY. Why would the bus driver agree to pay the fare? He doesn't need to travel to NY, the only reason he is doing it, is to make some money. He already has to pay for the wear and tear on his bus, and any mechanical trouble along the way, but with the addition of this stupid policy that he has to also pay the bus fare, it makes it less attractive as a venture, and the bus driver may determine he would be better off staying at home and watching the Super Bowl. This is what is happening to wealthy investors out there, they are looking at the Obama policies, the War on The Rich, the promise of ending the Bush tax cuts, the constant droning about raising the cap gains taxes, the demonizing of capitalist investments and finance.... and they are saying, fuck this... let's go to the Caymans and enjoy the weather! We need for them to start taking their money out of security investments and putting it to work building new factories, creating new jobs, starting new businesses, etc. The ONLY way to get them to do that, is to make it ATTRACTIVE to do that, instead of doing everything in our power to discourage it.
If the tax rate reductions granted for long term capital gain, (LTCG) incomes were eliminated, financial markets rates of return would adjust themselves as open competitive markets generally adjust to any changes of germane factors. It would certainly not kill start-up capital investments.
With all due respect, no it wouldn't, and I can prove it. When we increased the Reagan-era capital gains taxes under Clinton, the amount of investment capital available declined precipitously, and some economists will argue, this is what began the current recessionary conditions, sparked along the way, of course, by the failure of the financial and housing sectors. We tend to look at the most recent events and attribute the economy to that, but the conditions which enabled this recession were years in the making.
If your argument is, we can raise cap gains taxes to the same as regular income, and markets will eventually adjust, that may be correct, but you know what else would happen, the amount of venture capital available would decline. Of course, if we are in great economic times, like we were at the end of the Reagan administration, it might not be that noticeable, and we might be able to live with the increase in tax and decrease in investment, but we aren't in those times now, we are in the shitter with the economy, we have no job creation to speak of, we have no new spark of economic expansion, we have no risk-taking entrepreneurs willing to invest their money in a good idea.... it's a cycle. In order to return to the days of old, we have to take bold measures, like reducing significantly, or even eliminating, the capital gains tax. If we did this, in a matter of months, we would start to see factories rise up, with many new jobs to follow, and through the cumulative economic growth, we would actually create more tax revenue in the end.
Almost all LTCG transaction tax benefits are due to transfers of wealth rather than to investments. Due to the extent of start-up ventures’ risks, the LTCG tax reductions do extremely little to increase actual investments.
I don't know where you got this information, but it's dubious at best. Due to the extreme risks of venture capital, the cap gains tax becomes a crucial determining factor in any investment. Why would anyone in their right mind take great risks with their money so they can turn around and pay the same taxes as if they had earned income? It makes no sense to a rich person, and a rich person is very often the type that doesn't do things stupidly when it comes to finance. They can find less "taxing" ways to use their wealth, with far less risk, they don't have to invest in new capitalist ventures.
Only when the decision “hangs on thread” does the LTCG tax reduction induce any start up investment.
And in the case of new untested start up corporations, the decision to take a risk and invest, is ALWAYS hanging on a thread! It's hard enough to expect wealthy investors to take the risk, WITHOUT the cap gains tax... add that, and you create what is often a 'deal killer.' Again, explain to me why any smart investor is going to take the risk with his money, so that if he realizes a profit or gain, he will have to pay the same tax as if it were income... when he can get a nice return on his money while it sits risk free in security investments and not suffer the tax liability? Or better yet... he can take that same $100 million capital investment, and use it in a country like Belize or Singapore, where there is no capital gains tax, and he isn't even subject to US income tax, unless he cashes in and brings the money back home.
Within all other of such questions the other aggregate factors determined the final decision.
LTCG tax discounts induce extremely few investments and not significant numbers of wealth transfers. It does decrease tax revenues and increase our budget deficits.
Tax revenues historically decrease when we raise the top marginal tax rates. This is because of a really simple concept people can't seem to grasp... wealthy people do not NEED to earn income! They already earned their incomes, it has already been taxed. They now have amassed wealth, and they pay CPAs good money every year, to find ways to show less 'income' and pay less taxes. The way to encourage these people to loosen the purse-strings, is NOT to increase capital gains tax.
With respect to your view that CG tax 'discounts' cost us money we could be gaining in tax revenue, I disagree as well. Reducing cap gains taxes, encourages investment... Investment creates new business, new jobs, both are taxable in the form of corporate and personal income tax, so the increased investment due to reduced cap gains, is directly responsible for GREATER revenues in the end. You are going to gain much more in tax revenue as a result of a new factory employing hundreds of people or a new corporation selling millions of units of product, than you would have ever gained by taxing the initial capital investment.
A LTCG sales transaction is a pretax transaction; (i.e. the profit from that sale were not previously taxed) there’s no logical reason that sales income should not be taxed and taxed at the regular rate.
Respectfully, Supposn
Again, there IS a reason, I explained it earlier with an analogy about a charter bus to NY. A wealthy capital investor has absolutely NO reason to take a risk with his money and invest in some new venture, if the reward for doing so is going to be taxed the same as income. There are many less risky ways for the wealthy person to utilize their assets, and probably even make more profit with less tax liability. Now we can chew the fat on this as long as you like, and we can ponder and pontificate on our respective viewpoints, but all we need to do is look at the current situation in our country, the reality of our current tax policies, and how they have affected investment the past 20 years or so. It's hard to argue with reality.
