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How come Conservatives always complain about a double taxation on Capital Gains tax..I dont get it. Is there ordinary income along with 15% cap gains.?
Suppose we have a capital gains tax on the stock of company A. The value of that stock is equal to the discounted present value of all of company A's future earnings. Suppose company A is expected to earn $1 million over the next 30 years, the price of the stock reflects those returns. The gain realized by us on the sale of the stock reflects the future earnings, and the capital gains tax is therefore a tax on a future pool of earnings. The problem is that the $1 million in earnings are also taxes when they are physically earned, meaning the $1 million is taxed twice, once when the share of stock is sold (a tax on future earnings through the capital gains tax) and once when the company actually earns the income.
How come Conservatives always complain about a double taxation on Capital Gains tax..I dont get it. Is there ordinary income along with 15% cap gains.?
The reasoning is because of the corporate tax and then the subsequent capital gains tax to realize it by the stock holder.
The problem is however, as I have been pointing out for quite some time, is that the values behind this is often monopolistic in nature such as land. minerals and natural monopolies. Corporation X with a lot of unrealized gains in real estate may be bought and sold as ordinary "capital" when in fact its real estate that is also being traded. The labor theory of capital excludes land, minerals, water, access, monopoly and so on.
Thus we have muddled as a single class of income productive capital invented by human hand vs the increase in wealth form doing absolutely nothing. Most of the wealth in this country is in that form because human technology is quite perishable, and natural monopolies are not. This is why they are so effective in retaining value. Typewriters went to zero, while land does not.
So long as this model remains, the whining about the double tax is largely unjustified.
With the high corporate tax rate making corporations so uncompetitive, its a good thing we have, as opposed to say India and Mexico, good roads, rail, police and fire protection, courts, infrastructure, and an educated, and well fed populace to make up for it.
The reasoning is because of the corporate tax and then the subsequent capital gains tax to realize it by the stock holder.
The problem is however, as I have been pointing out for quite some time, is that the values behind this is often monopolistic in nature such as land. minerals and natural monopolies. Corporation X with a lot of unrealized gains in real estate may be bought and sold as ordinary "capital" when in fact its real estate that is also being traded. The labor theory of capital excludes land, minerals, water, access, monopoly and so on.
Thus we have muddled as a single class of income productive capital invented by human hand vs the increase in wealth form doing absolutely nothing. Most of the wealth in this country is in that form because human technology is quite perishable, and natural monopolies are not. This is why they are so effective in retaining value. Typewriters went to zero, while land does not.
So long as this model remains, the whining about the double tax is largely unjustified.
Good job trying to justify taxing the same dollar more than once.
Can you please address the issue of paying taxes on future earnings as capital gains does today? You seemed to forget to address that portion of the capital gains puzzle.
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Originally Posted by gwynedd1
With the high corporate tax rate making corporations so uncompetitive, its a good thing we have, as opposed to say India and Mexico, good roads, rail, police and fire protection, courts, infrastructure, and an educated, and well fed populace to make up for it.
/sarcasm off
Let's put competitiveness to the side for a minute and think of basic fairness. Do you think it is fair to tax the same dollar twice? Corporate taxes are simply the government taking advantage of the average American to make up for how poorly it handles it's financial matters.
So lets see if i get this straight..Corporations are taxed on future earned income and shareholders are taxed when they sell a stock. So are the corps passing along this tax to the shareholder in a form of a "double tax"..How is that so.?
Pretty much everything is double taxed, so it's kind of moot how important it is that capital gains are.
Say you have $100 left after Sam taxes your paycheck. You can either choose to consume it and pay 0% or invest it in the hopes of future gains on which you will pay 15%. Now, let's look at what you're buying. The consumption item is mostly a cost of business write-off so you're not paying taxes on most of it. A $100 item probably includes $2 of tax expense passed along to you (10% ROI, 20% effective tax rate). A stock is valued at $100 based on expected future earnings on which the company will pay 20%. Say the company earns $10 a year per share), of which $8 it keeps (EPS). That means that P/E ratio (price:earnings) is 12.5:1. If the company kept all $10, it would be worth $125. That's not the side of "double taxation" conservatives are complaining about, but it is why changes to corporate tax structure are so sensitive. If all of a sudden tomorrow corporate income taxes were done away with, the people who own stocks would see a 25% windfall. Raising the corporate tax would have the same effect of destroying shareholder value. Yes, the 1% would be the most effected, but most of us have pensions, 401k/403b, and/or IRA accounts of some form.
The double taxation part usually refers to the 15% capital gains only. I'd argue that it's entirely irrelevant that it's double taxed, because the price you paid already reflects the tax ($100 for the stock instead of $125). Still, the 15% has its effect. Going to the no tax scenario, the stock is priced at $125 because you have to pay 15% on the capital gains. You're right now valuing future earnings at 85% of their full value because that's all you get to keep. If you were valuing the full amount of the future earnings, you'd be willing to pay $147 for the same stock. Thus taxes have "destroyed" $47 dollars of the stocks value. Of course, the same windfall profit/loss would occur if the capital gains tax were to be raised or lowered.
As I said, I feel the whole concept is meaningless. The prices already reflect the taxation. You're really not "discouraging" people from investing and pointing them to consumption which is, on its face, the argument that conservatives are making. Actually, you're doing the opposite as everyone has access to investment vehicles to use pretax dollars in. Those are mostly middle class sized.... a 1% is going to max out an IRA in a hurry.
Good job trying to justify taxing the same dollar more than once.
Thanks. But its often the same unearned dollar since the capital and labor around assets is what created that dollar, the whole dollar. We should shift tax burden off that? There is no burden when your land doubles in value because you bribe the politician to send water into the San Joaquin valley. That made many an insider millionaire doing absolutely nothing(but destroying the Owen's valley and leaving it a salt flat).
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Can you please address the issue of paying taxes on future earnings as capital gains does today? You seemed to forget to address that portion of the capital gains puzzle.
I have, over and over again. Assets and capital should not be classified together at all for tax treatment. There should be land value taxes, monopoly taxes, not taxes on capital. The current corporate income tax punishes capital rich but asset poor companies. It rewards asset rich and capital poor companies that spend time sabotaging their competitor. However the reality of the situation is that so much wealth is contained in assets rather than capital. Capital is in constant depreciation, not to mention R&D overhead. That is why so many people were suckered into the tech bubble. Those are capital rich, asset poor companies. Wealthy people know to rotate that value into assets.
Speaking of that, suppose I held the domain name books.com as an Internet domain name speculator. Since I am so productive, I should not have to pay a fee? I should get every penny I earned with good tax treatment and profits selling to Barnes and Noble? That is what I call crapital gains, with fatty blood suckers screaming for more meat pie and the unfairness of too thin a cut of fatty pork.
I am an insider to this process. I worked for companies that became financial companies. That is where all their profits came from. That is because debt became the best business to get into. Insurance as well since
GE is now making money in the FIRE sector as its most profitable arm
Sears Roebuck?
1. All State spin off
2. Discover card spin off.
3. Last profitable division sold to City Group was credit.
Big 3 auto maker cash cows? FIRE sector like GMAC.
Its all rent since credit comes from thin air.
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Let's put competitiveness to the side for a minute and think of basic fairness. Do you think it is fair to tax the same dollar twice? Corporate taxes are simply the government taking advantage of the average American to make up for how poorly it handles it's financial matters.
When its an economic rent that by definition was earned by someone else improving the area around you, you should get very little of it.
Split off capital and economic rents . Labor capital should have no tax.
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