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One of the bones of contention in the recent ongoing unpleasantness is the rate for capital gains.  Since capital gains involve investing today and taking profit later, the best argument for a lower rate is that inflation accounts for a considerable part of the capital gain.

Eli says, use the chained CPI to inflate the basis so that the difference between the profit and the investment takes inflation into account

That is all

And, oh yes, vote in Eli's climate change story of the year poll

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Comment Preferences

  •  While inflation may be an argument (0+ / 0-)

    for a lower capital gains tax, the rate of inflation does not affect the capital gains tax rate. If anything inflates the basis of a stock purchase, the result is lower capital gains thus lower taxation, at whatever the rate.

    Ex:
    purchase stock for $1,000,000
    sell it later for $2,000,000
    capital gain $1,000,000 taxed at 15% tax revenue $150,000
    investor pockets $1,850,000
    but
    purchase stock for $1,000,000
    sell it later for $2,000,000
    change basis to $1,500,000 due to inflation cola, cpi, whatever...
    capital gain $500,000 taxed at 15% tax revenue $75,000
    investor pockets $1,925,000

    If you want to argue for a higher capital gains tax, just do it. One of the points of stock investment is protection against inflation, since the value of the stock rises, supposedly, along with inflation, thus avoiding a loss in value over simply hiding your money in a mattress.

    Getting protection from inflation and a tax shelter as well is a bit like eating your cake and having it, too. Perhaps instead of protecting assets against inflation, we could institute policies that reduced inflation to negligible amounts.

    "The problems of incompetent, corrupt, corporatist government are incompetence, corruption and corporatism, not government." Jerome a Paris

    by Orinoco on Mon Dec 31, 2012 at 07:16:39 PM PST

    •  I'm guessing here... (1+ / 0-)
      Recommended by:
      Orinoco

      but maybe the idea is to tax capital gains at the same rate as other income but with inflation removed.

      Seems complicated...

      Would interest income have to be treated similarly?

      To my mind, most everything ought to be indexed to inflation if possible.

      Do what Jesus would do if he were rich.

      by jestbill on Mon Dec 31, 2012 at 10:36:48 PM PST

      [ Parent ]

      •  In a nutshell... (0+ / 0-)

        inflation is too much money chasing too little stuff. If the supply of money grows at the same rate as the supply of stuff, then there is no inflation, in theory.

        In practice, lack of inflation slows down markets, I think. There's little point in buying a house, for example, to flip it, if the price doesn't rise significantly. Likewise, if no one bought stocks to protect assets from inflation, there would be very little reason to invest, unless some company announced a new product or market penetration or production advance. So speculators need inflation to keep markets moving so they can make a lot of money to keep ahead of inflation.

        I believe Brazil tried indexing everything to inflation, but since nothing happens simultaneously, wage increases were chasing retail prices which chased rising wages which chased retail price increases...  

        If it seems like a hampster spinning in a wheel, well, that's kind of what it's like.

        "The problems of incompetent, corrupt, corporatist government are incompetence, corruption and corporatism, not government." Jerome a Paris

        by Orinoco on Mon Dec 31, 2012 at 11:49:18 PM PST

        [ Parent ]

        •  Uh. (1+ / 0-)
          Recommended by:
          Orinoco

          The hampster you're talking about is the speculator "flipping" a house.
          Houses are to live in.  They are only "investments" to people with too much money and no idea what to do with it.
          Markets move if there is a market: inflation over a couple of percent is not really a feature but a bug.  

          We have low gasoline taxes because they are not indexed. We nearly went over a "dairy cliff" because price supports were indexed (sort of) in 1949 and never properly changed.
          We have low, low minimum wages because they are not indexed.

          The AMT has to be modified EVERY YEAR because it is not indexed.  The pay rate for doctors set by Medicare has to be modified EVERY YEAR because it was set wrong from the beginning and is not indexed.

          Did Brazil fix the problem by getting rid of indexes? No.

          Do what Jesus would do if he were rich.

          by jestbill on Tue Jan 01, 2013 at 10:33:14 AM PST

          [ Parent ]

          •  No, Brazil still has inflation (0+ / 0-)

            but every time they made a serious attempt to get inflation under control (sometimes successfully for a time, sometimes not), one of the control measures was getting rid of the indexes.

            We index some things, and don't index others. Inflation is a problem, most severe for investors and others with too much money and no idea what to do with it. It is less of a problem for debtors, since they get to pay off loans with "cheaper" currency than if there were no inflation.  

            I get it about things that are not indexed in a situation where some things are indexed. But all an index really does is keep some particular group from getting hurt by inflation, it doesn't do anything to solve the underlying problem. And, as in Brazil, if everything is indexed, the indexes themselves become a part of the problem.

            "The problems of incompetent, corrupt, corporatist government are incompetence, corruption and corporatism, not government." Jerome a Paris

            by Orinoco on Wed Jan 02, 2013 at 11:44:32 AM PST

            [ Parent ]

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