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Answering a direct question on "60 Minutes" yesterday, Mitt Romney said it was fair for him to pay a lower tax on $20 million in capital gains than a worker pays on $50,000 in wages “because capital has already been taxed once at the corporate level, as high as 35 percent.”

Romney was echoing a claim contained in an Ernst & Young study purporting to calculate “integrated” tax rates on capital gains and dividends by (listen up, now) combining taxes paid at the corporate and individual levels. It’s a combination of apples, oranges and tomatoes too, thrown together in a crazy right-wing stew.

Romney delivered his answer with a straight face, to a national television audience, as if it were the gosh-honest truth. In the real world it’s gosh-awful garbage.

The same study was used by the chairman of the Ways and Means Committee, Rep. Dave Camp (R-MI), in his opening statement to a hearing last week on tax reform and the tax treatment of capital gains. Here's an eye-opening sample:

As we consider the economic impact of the tax burden associated with capital gains, it is critical that we focus on the total integrated rate, which is nearly 45 percent, not just the statutory rate of 15 percent. The capital gains tax is often, though not always, a double layer of taxation. For example, in the case of shares of stock, a company’s income is first taxed at the corporate rate. Then, when shareholders of the company later decide to sell their stock, they are subject to capital gains tax on the sale. But the value of the stock they sell already has been reduced by the fact that the corporation previously paid out a portion of its earnings as taxes. So, even if we make current low-tax policies permanent, the top integrated rate on capital gains is actually 44.75 percent – a 35 percent first layer of tax and a 15 percent capital gains tax. If we allow current low-tax policies to expire, the top integrated rate on capital gains will exceed 50 percent.

Ernst & Young is saying, and expects you to agree, that a tax on a corporation’s income is really a “35 percent first layer of tax” on an individual’s stock market gain. It's nonsense, but it gets picked up and spread on national TV by the Republican candidate for president. Let's try to unravel the latest Romney ridiculousness: the claim that his gazillions in capital gains deserve a lower tax rate than a worker's wages.

Let’s start by noting that a capital gain, by definition, is the difference between the basis price (the price paid for the stock in the first place) and the proceeds, the amount realized when the stock is sold. By definition, capital gains never existed before; by definition, capital gains were never taxed before; lastly and also by definition, "double taxation" of capital gains is a complete and total fiction.

Let’s also note that any claimed relationship between a corporation’s money and an individual’s stock market capital gain is essentially non-existent; to infer that these monies are basically one and the same, and that a tax on one is a tax on the other, is rubbish.

Let’s note as well that the 35 percent tax rate cited by Romney is mighty misleading. It’s the top corporate rate all right, but it’s paid by few U.S. companies. Many major U.S. corporations are members, in fact, of Romney’s moocher class: via various loopholes and tax dodges (with which he's quite familiar), they pay no federal income tax at all.

The last paragraph of Camp’s opening statement refers to "compelling arguments for providing a preferential tax treatment for capital gains.” Those “compelling arguments” were rejected in late 2011 by President Obama's Simpson-Bowles fiscal commission, which called for equal taxes on all income: the same tax rates on capital gains and dividends as the tax rates on wages.

Mitt Romney may think it's fair that capital gains and dividends get taxed at a lower rate than wages. Simpson-Bowles didn't think so, nor did the Bipartisan Policy Center in Washington in a second blue-ribbon deficit reduction report issued shortly afterward. That report, the so-called Rivlin-Domenici report, also called for equal taxes on all income.

So too, long ago, did GOP icon Ronald Reagan. One of the centerpieces of Reagan's signature Tax Reform Act of 1986 was equal taxes on income from wealth and income from work.

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Comment Preferences

  •  Excellent diary, one that should get front- (0+ / 0-)

    paged.  It's something that should come up in the debates if the moderators do their jobs.  Teevee folks are glomming onto the Simpson-Bowles Commission's recommendations, but they sidestep the equal taxation for earned and unearned income.

    Romney's claim that capital gains have already been taxed once is laughable in that so few corporations ever pay much in taxes.  And if we use his logic (ha!) wages have already been taxed at the corporate level if indeed the corps are paying taxes.  The great orange snarl above reflects this kind of thinking.

    Romney went to France instead of serving in our military, got rich chop-shopping US businesses and eliminating US jobs, off-shored his money in the Cayman Islands, and now tells us to "Believe in America."

    by judyms9 on Mon Sep 24, 2012 at 07:55:00 AM PDT

  •  Effective tax rates: 100k, family of 4, pays 10% (0+ / 0-)

    That is if you take standard deduction and have the four exemptions. If you have two kids in college, your rate is closer to 5%.

    How does a family of four pay more fed income taxes than an effective rate of ten percent? Wouldn't the effective rate be even lower if you made less than $100,000?
     

    "If the past sits in judgment on the present, the future will be lost." Winston Churchill

    by Kvetchnrelease on Mon Sep 24, 2012 at 07:55:46 AM PDT

  •  By that rationale, (1+ / 0-)
    Recommended by:
    Sunspots

    even wage earners are getting double-taxed, because if corporations didn't have a federal income tax obligation, they could afford to pay their workers more.  Right?  Oh wait, they'd never do that.

  •  By that logic (1+ / 0-)
    Recommended by:
    Sunspots

    all money is taxed already.

  •  Here's the counterargument: (2+ / 0-)
    Recommended by:
    nextstep, VClib

    I start a company and invest $100.  During the first year, the company makes $100 of profit, pays $35 in tax, and is left w/ ending assets of $165.  I then sell it for $165, and pick up the $65 as capital gains.  In that (very, very simplified) example, there are two layers of tax: the company paid tax on that second $100, and it's getting taxed again when I sell it.  

    In the jargon of tax, I don't get any increase on my outside basis when the inside basis increases.  That's how S-corps and partnerships avoid the double tax: since the income inside the entity would've been subject to tax, my basis in the company would've increased to $200.

    •  For this example, the net tax rate is 44.75% (2+ / 0-)
      Recommended by:
      VClib, johnny wurster

      if you pay a 15% capital gain rate.

      The most important way to protect the environment is not to have more than one child.

      by nextstep on Mon Sep 24, 2012 at 08:52:45 AM PDT

      [ Parent ]

    •  Double tax is utter nonsense! (1+ / 0-)
      Recommended by:
      Sunspots

      First of all, it doesn't really work that way.  If you have a business throwing off $65 after tax on a $100 investment, it is going to be worth much more than $165.  Rough order of magnitude not knowing any details on this hypothetical example, it would probably be priced at $1100 to $1500.

      So, if you sold it, then yes, the first $100 of gain would be 'double taxed', but the remainder would never have been subject to tax.

      That assumes you own the company and participate in its productivity.

      But, most investors are secondary market investors.  They buy the stock off of an exchange and pay market value for the shares.  The company does not participate in gains and losses off of the exchange.  You as an investor (gambler) do.

      The whole "double tax" thing is bullshit.

      I've been a CPA for 36 years and a CFO of a Fortune 500 company.

      You are being fed crap.

      4π^3 + π^2 + π

      by Boris49 on Mon Sep 24, 2012 at 10:07:48 AM PDT

      [ Parent ]

      •  Glad you agree w/ me. (0+ / 0-)
        So, if you sold it, then yes, the first $100 of gain would be 'double taxed'
        The rest of your comment is addressed to points I never made, so no response on my part is necessary.
        •  It is always possible to draw up rubber meets the (0+ / 0-)

          sky examples. In general, since it's now my turn with the sky, you would be considered a very poor businessman for selling a business for $165 when it is generating $65 after tax profits per year.  

          Don't bother to respond.

          4π^3 + π^2 + π

          by Boris49 on Mon Sep 24, 2012 at 11:21:04 AM PDT

          [ Parent ]

  •  Well done! (1+ / 0-)
    Recommended by:
    Sunspots

    For purposes of taxation, income is income and it should all be treated the same. It's all new money in one's hand. Why should I get preferential treatment for using my mind and a quantity money as a tool to enrich myself, over using my mind and a scalpel as a tool to save a life or limb? This does not seem to be the most intelligent alignment of incentives that we could come up with, does it?

    •  Investors would love to pay the same net tax rate (0+ / 0-)

      as what is paid for income from work - if the tax law truly taxed them both at the same rate.

      The most important way to protect the environment is not to have more than one child.

      by nextstep on Mon Sep 24, 2012 at 08:57:13 AM PDT

      [ Parent ]

      •  I think you got that backwards, please explain. (0+ / 0-)

        My personal experience precisely the opposite. I live on investments and social security. 2010 I had to pay $74 on $109K investment income because my only "earned" income was social security. That was little enough to put my investment income in the ZERO bracket. I did better in 2011 - got a tax credit and paid net negative income tax. Before I retired, I paid the top marginal rate every year, and an average federal income tax rate of around 30%, even though only a third of my income was hit by employment taxes.

        That's what I see empirically. How do come to your conclusion?

        •  Sounds like you invested in Muni Bonds for (0+ / 0-)

          much of your income or you had significant deductions, personal credits, or had significant use of foreign tax credits from taxed foreign income.

          I assume that you do not call the proceeds from the sale of assets income without deducting their cost.

          Except for the above, I don't see how your Fed Income tax would be $74 on $109K of taxable investment income.

          What type of investment income made up the $109K?
          Qualified Dividends
          Unqualified Dividends
          Muni Bonds
          Ordinary Interest income
          Short term Capital Gains/losses
          Long Term Capital Gains/losses
          Other?

          The most important way to protect the environment is not to have more than one child.

          by nextstep on Mon Sep 24, 2012 at 10:55:25 AM PDT

          [ Parent ]

          •  Qualified div and cap gains, mostly corp, hardly (0+ / 0-)

            any muni, some foreign tax withheld, not much. Itemized deduct of 28K - Medical costs, no mortgage, don't get interest deduction, have one kid in college so I got a tax credit to drop my tax from $1774 to $74. It blew my mind. 2011 had cap losses that will carry to  this year, but int and div income were taxed at 0%. In 2010-11 if you were in the 0 or 10% bracket for earned income, your qualified investment income tax rate (for div & CG) was ZERO.

          •  I showed you mine, (0+ / 0-)

            my question was how you came to your conclusion that

            Investors would love to pay the same net tax rate . . . as what is paid for income from work - if the tax law truly taxed them both at the same rate.
            Please explain.
            •  Under the current Tax law (0+ / 0-)

              Investors in C Corporations have pre-tax corporate income taxed at 35%, then this income is taxed again when returned to shareholders either through dividends or capital gains (currently at a max 15% rate when held long term).

              This double tax has an effective rate of 45% instead of a max 35% rate on ordinary income.  A 35% tax rate without double tax would increase investor after tax income by 18%.

              On capital gains from the sale of stocks, the gains do not automatically match the income of a company after tax dollar for dollar.  However, over time the increase in stock market value as a whole tracks retained earnings and inflation.

              Finally, phantom gains from inflation of asset prices are taxed, even though there are no economic profits.  So taxing investment income the same as earned income would require an inflation adjustment for the cost basis.

              The way to correct for double taxation comes down to letting corporations treat dividend payments the same as interest in   being deductible expenses and providing shareholders a "tax withholding credit" equal to the per share US income tax paid. Then tax capital gains and dividends the same as ordinary income.

              The most important way to protect the environment is not to have more than one child.

              by nextstep on Mon Sep 24, 2012 at 01:45:51 PM PDT

              [ Parent ]

              •  That's just wrong (0+ / 0-)

                Repeating my comment from another thread -

                Once the stock becomes traded on an exchange, it's value is only marginally related to the real value of the underlying company. Look at Facebook, for example. It's seeking a market level which is vastly different from it assumed value at IPO. Stocks move both on profits and prospects.

                If you buy a diamond for $1000 you're paying for some real work in mining and processing the stone, and a market imposed price premium based largely on scarcity and desirability. If some years later you sell the stone for $1500, that $500 profit is a gain to you alone. The diamond merchant, who today sells the same stones for $1500, never paid taxes on that $500 of your profits. Perhaps he had profit when he sold you the stone for $1000, of perhaps he sold it to you at a loss. Perhaps he bought at an earlier time when they were more scarce and paid $1200 at the time. You didn't get to claim that $200 profit did you? Nor did you pay taxes on it. The same is true for stock. Every time it changes hands it is a potential gain or a potential loss to somebody, but not to the issuing company.

                When you buy stock, that IS the asset. Unless you are a very large investor where you can seize some control of the company, believing your stock is derivative of the company is foolish. It is an asset bought and sold on the open market.

                •  Stock is a share of a company. (0+ / 0-)

                  By definition its value is derivative from the value of the company it is a share of.  When economists give examples of a derivative, one of the common examples is a share of stock.

                  On every business day, some companies go "ex-dividend", which means that owners of the shares on the previous day receive the dividend, but those who buy on the ex-div day do not. On these ex-div days the stock price of these companies decline on average by the amount of the dividend.  This shows that the value of the company share when down because the cash in the company went down.

                  The double taxation occurs on dividends and the increase in retained earnings.  I did not write that there is double taxation on all capital gains.  In my above comment, I presented one way the double taxation of dividends and retained earnings can be corrected.

                  The most important way to protect the environment is not to have more than one child.

                  by nextstep on Mon Sep 24, 2012 at 03:11:40 PM PDT

                  [ Parent ]

                  •  This is silly (0+ / 0-)

                    Once it is marketed it is a separate asset, both in law and in fact. The contrary framing is really quite stupid. Double taxation does not occur on the purchased asset. Period. I'll not bother myself with this foolishness any further except to note that the framing that produces your misconception can also be applied to taxation of social security benefits, double taxation through the source of ones paycheck. In fact, money flows through the economy are subject to infinite rounds of taxation. That observation, while true, is meaningless.

                    Bye bye.

    •  Equal taxes (0+ / 0-)

      "For purposes of taxation, income is income and it should all be treated the same." Absolutely, positively, no question about it. (I'd make one exception: money that's actually invested in companies, that does in fact grow jobs and grow the economy, should get a preferential rate...and perhaps shouldn't be taxed at all. I'm talking about money that's invested in initial public offerings, money that does go into companies. All other stock market trading is simply shares trading hands; it's speculation, nothing else. I have nothing against speculation. To say that it deserves a tax break, however, is just nonsense.)

  •  It's very simple. (1+ / 0-)
    Recommended by:
    Sunspots

    When you sell stock in a business you are selling the potential for future earnings. Future money has not yet been taxed.

    Consider this example: A farmer buys a cow for $400. He keeps it for 6 months and sells the milk for $300, paying taxes on the milk. Then he sells the cow for $500 at a profit of $100. Clearly the purchaser is not buying it for the milk it has already produced, he is buying it for the milk it will produce in the future. That milk has not yet been taxed so it would be dishonest for the farmer to claim that he has already paid taxes on the profit from the cow.

    If there is any doubt remaining that Romney is being consciously dishonest this "integrated taxes" argument* removes all doubt. Either that or he is lacks sufficient intelligence to see how it is a lie. Since a 12 year old can easily see the faulty logic, that would be a disqualifying deficiency especially given that knowing the ins and outs of taxation was the core of his stock in trade at Bain.

    *Actually the integrated tax rate argument might work when considering dividend income from a corporation that has already paid taxes. But it is BS when dealing with capital gains on the sale of stock from the corporation. You are selling not-yet-taxed future earnings, pure and simple.

    The world is a den of thieves and night is falling. -Ingmar Bergman

    by Pirogue on Mon Sep 24, 2012 at 08:47:53 AM PDT

    •  You did not follow your own example (1+ / 0-)
      Recommended by:
      VClib

      For the case of the Farmer and Cow being treated as a corporation.  After $105 is paid in tax on the sale of the milk, the farmer then gets the remaining cash of $195 in a dividend from Cow Corporation.  The farmer now pays tax on the dividend of $29.25 and has $165.75 after all taxes are paid.  So the net tax rate taken on the $300

      = ($105 + $29.25)/$300 = 44.75% tax rate.  

      The most important way to protect the environment is not to have more than one child.

      by nextstep on Mon Sep 24, 2012 at 09:20:32 AM PDT

      [ Parent ]

      •  If you had read my whole post (0+ / 0-)

        you would see that I said that the "integrate taxes" argument might serve for dividend income which is what your post dealt with.

        But you did not address the clear idea that the purchaser is buying the future, as yet untaxed, production of milk, not the past production that has already been taxed.

        And the cow example was one that pertains to show what is actually being purchased, but the actual numbers are not typical of a corporation. A corporation is simply no going to earn 60 to 75 percent of its market capitalization in six months, so you effective rates are not pertinent to the capital gains question.

        So why do you believe the purchaser is buying past production or the future production which has not yet been taxed?

        The world is a den of thieves and night is falling. -Ingmar Bergman

        by Pirogue on Mon Sep 24, 2012 at 09:44:29 AM PDT

        [ Parent ]

        •  There is also double taxation on retained earnings (0+ / 0-)

          Retained earnings is what is left from income in the company after taxes and dividends.

          A simple example of this is a company stock that is purchased for $100.  A year goes by, no dividend is paid and the cash in the company increases by $10/share after paying taxes on $15.38 in pre tax profits.

          Essentially, to company is the same as at the beginning of the year except that it now has $10/share more in cash.

          If the share owner were now to sell her shares at $110/share, capital gains tax would be due on the $10 gains that resulted from the increase in cash after paying taxes on income.

          The most important way to protect the environment is not to have more than one child.

          by nextstep on Mon Sep 24, 2012 at 10:36:56 AM PDT

          [ Parent ]

          •  The argument you are making is (0+ / 0-)

            if anything a case to tax that part of capital gains which are a result of retained earnings (a part which in reality is usually a small percentage of the actual capital gains) at a special rate. So would you advocate for a capital gains tax that only granted a special rate to that portion which is actually owing to retained earnings?

            And you still haven't addressed the idea that most of what is being purchased is the future earning potential of the capital being purchased and, therefore, represents income that has not yet been taxed therefore nullifying the "integrated tax rate" contention.

            The world is a den of thieves and night is falling. -Ingmar Bergman

            by Pirogue on Mon Sep 24, 2012 at 11:22:14 AM PDT

            [ Parent ]

            •  The Current Policy is Terrible for Employment (0+ / 0-)

              The double taxation on dividends and retained earnings is terrible for US employment.  Specifically, the types of investments that are subject to double taxation are generally those that employ people.  So the highest tax rates in US tax policy is reserved for investments  that employ people.  US Tax policy effectively tells investors to prefer investments that don't employ people.  

              If one invests in short term security price movements, real estate, commodities, art, bonds, etc.,  the investor pays a much lower economic tax rate than activities that employ people.

              The current lower long term capital gains rate does not target the double taxation issue exclusively, so it applies even when their is no double taxation.

              My preference would be to have one tax schedule for earned and unearned income and capital gains.  Dividends should be treated the same as interest on company and individual taxes - both are deductible expenses.  For US Income taxes (not foreign) paid by the company, the shareholder gets "tax withholding" reported equal to her per share US income tax paid. This eliminates the double taxation of dividends and retained earnings.

              The most important way to protect the environment is not to have more than one child.

              by nextstep on Mon Sep 24, 2012 at 11:55:20 AM PDT

              [ Parent ]

              •  You seem to have shifted tacks. (0+ / 0-)

                The original question to Romney was a matter of basic fairness. That was hard to make moral sense out of such a low tax to investors when compared to those who actually do work to earn money.  He tried, and you followed, to use the "integrated tax" argument to show.

                But now you have shifted to a justification based on incentivizing job creating investment. (Never once answering, I might add, the qeustion about whether the purchaser was buying future milk production or past milk production.)

                But, hey, if you think incentivizing job creation is the answer, let's do it in a more direct way instead of trying to rely on a scheme that privileges the investor class beyond all that is morally reasonable. Why should Paris Hilton, sleeping off last night's party, be paying a lower rate than the worker who is up at 5 am hustling to support a family with the sweat of his brow?

                I am quite skeptical that money will flock to your alternate investments the way you expect it to, they all have major shortcomings that diminish their attractiveness as investments when compared with job creation. Let's remember that in the mid 1950s the maximum tax rate was 91 percent and capital gains were at 25 percent and we were the economic engine of the world with a proserous and growing middle class. It is kind of hard to square that statistic with the doom and gloom auguries of the Reaganomics crowd who have been claiming that all we have to do is lower the taxes of the investor class and all will be hunky-dory. It seems the actual reality of the last 30 years has proven the exact opposite to be the case.

                The world is a den of thieves and night is falling. -Ingmar Bergman

                by Pirogue on Mon Sep 24, 2012 at 04:52:48 PM PDT

                [ Parent ]

                •  Pirogue - in the mid 50s we were the dominant (1+ / 0-)
                  Recommended by:
                  nextstep

                  economy as the rest of the developed world recovered from WWII. In addition, the tax code favored investment in numerous domestic activities by offering the ability to completely eliminate your federal tax liability as long as you invested in projects that were structured as tax shelters. Some of the projects were scams, but there were economically sound, viable, projects that offered the ability to shelter your earned income. As an example if you invested in an apartment house or commercial mall you could take a $40,000 - 50,000 deduction against your salary for tax purposes by investing $10,000. I was in that business until 1986 when the Tax Reform Act of 1986 killed my company with the stroke of a pen. Comparing tax rates before and after 1986 are apples and oranges, they have no relationship to each other.

                  We don't have hard data but some estimate that the effective federal tax rate for the top 1% was about 40% when the top marginal rate was 90%.

                  "let's talk about that"

                  by VClib on Wed Sep 26, 2012 at 01:04:00 PM PDT

                  [ Parent ]

                •  Actual reality (0+ / 0-)

                  "It seems the actual reality of the last 30 years has proven the exact opposite to be the case."

                  Agreed, but there's no convincing VClib (and if you read his comment below, you'll see why).

                  "Why should Paris Hilton, sleeping off last night's party, be paying a lower rate than the worker who is up at 5 am hustling to support a family with the sweat of his brow?"

                  A second amen.

  •  Gerald - The Tax Reform Act of 1986 (1+ / 0-)
    Recommended by:
    nextstep

    for the first time taxed capital gains and earned income at the same rate as a result of a compromise to drop the top marginal rate from 70% to 28%. The 28% capital gains rate was less than people with 70% marginal tax rates had been paying on capital gains before TRA86. To suggest that Reagan supported taxing earned income and capital gains at the same rate, without the broader context of TRA86, is disingenuous. He did not.

    "let's talk about that"

    by VClib on Mon Sep 24, 2012 at 09:24:44 AM PDT

    •  Tax Reform Act of 1986 (0+ / 0-)

      The Act reduced the top marginal rate from 50% to 28% (not from 70%). To your point that I was being disingenuous by not mentioning the other terms of the act, I beg to disagree. I'm not writing a book here. All politics, especially tax politics, involve compromise (something today's GOP seems to have forgotten). Yes, Reagan obtained lower marginal rates in exchange for equal taxes on all income. Essentially the same bargain was put on the table by the Simpson-Bowles and Rivlin-Domenici plans.

      With that in mind, a question for you: would you, a la Reagan, support equal taxes on all income in exchange for lower marginal rates? I suspect not (but perhaps you'll surprise me).

      •  Gerald - all of the G20 tax capital gains (0+ / 0-)

        at a lower rate than earned income. If we want to encourage investment in the US I think we need to be competitive in the world's financial markets as capital seeks its highest after tax risk adjusted return. Thanks for the correction on TRA86, I forget that the top rate came down from 70% in steps.

        I would definitely take the TRA86 deal with a top rate of 28% for both earned income and capital gains. I would also take a higher capital gains tax in return for lower marginal rates. However, if the top marginal rate was higher than, at most, 30%, I would not favor taxing them the same.

        I favor lower capital gains rates for two reasons. To stay competitive globally and because I do think it encourages capital formation and economic growth. In addition, higher capital gains tax rates do not lead to higher capital gains tax revenues. When rates are low people recognize gains, pay the tax, and redeploy their financial assets. When rates are high many investors keep their appreciated capital assets, borrow against them, and wait for rates to decline before triggering a tax event by selling them. If higher rates don't raise more revenue, and in my view at the margin encourage investment, then I don't favor raising long term capital gains tax rates.  

        "let's talk about that"

        by VClib on Tue Sep 25, 2012 at 11:24:21 AM PDT

        [ Parent ]

        •  Capital gains taxes (0+ / 0-)

          VClib: I don't know if you happened to see my answer to another comment. If not, here it is in full: "'For purposes of taxation, income is income and it should all be treated the same.'" Absolutely, positively, no question about it. (I'd make one exception: money that's actually invested in companies, that does in fact grow jobs and grow the economy, should get a preferential rate...and perhaps shouldn't be taxed at all. I'm talking about money that's invested in initial public offerings, money that does go into companies. All other stock market trading is simply shares trading hands; it's speculation, nothing else. I have nothing against speculation. To say that it deserves a tax break, however, is just nonsense.)

          To which I would add: After IPOs, trades in the aftermarket have nothing do with real investing; they don't grow jobs or businesses, they grow portfolios. Nothing wrong with that by any means...but lower rates on capital gains, except for IPOs, have nothing to do with encouraging investment; they encourage stock trading, which is something else entirely.

          •  Gerald - I just don't agree (0+ / 0-)

            And I am surprised that you have such a narrow view of the capital markets. Public markets, and public market trading, play an essential role in capital formation. Who would invest in an IPO if there was no active after market to sell to when the investor wanted liquidity? Public markets represent an important element of the cost of capital for public companies and higher public market valuations make more growth projects viable even if they are funded by debt or internally.

            Even at the earliest stages of venture capital investors are looking for a liquidity path which is most often an IPO or sale to a public company. If the startup is sold to a public company for stock the startup investors are looking to the public market for liquidity.

            I do favor a special incentives for direct capital, money invested directly into a company that shows up on its balance sheet. However, I favor keeping capital gains status for public company trades out of the great respect I have for the US public markets, the national treasure they represent, the liquidity they provide, and the millions of jobs they support.

            "let's talk about that"

            by VClib on Tue Sep 25, 2012 at 03:41:41 PM PDT

            [ Parent ]

            •  Profit is enough incentive (1+ / 0-)
              Recommended by:
              VClib

              There's a famous quote from Warren Buffett along these lines: in all his years of investing, he's never seen anyone make a decisision based on capital gains taxes. Investors invest because they think the stock will go up; end of story.

              The market is the market. Surely you don't think it would vanish if the tax on capital gains were the same as taxes on wages?

              Yes, we disagree. So it goes.

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