Democrats' latest tax proposal

[Terr]

@iiandyiiii

He’s talking about day-traders and other short-term investors… what’s the harm if there is less day-trading? How is lots of day-trading better than less day-trading?

Day-traders provide liquidity. Stock markets live and die by liquidity.

[BobLibDem]

@D_Anconia

Maybe, but that demand cannot be met without the capital to build the factory.

Is there a shortage of capital? We need customers, not capacity.

[D_Anconia]

@iiandyiiii

Not all bonds. US treasury bonds are an example of a (for all intents and purposes) risk-free investment. And for CDs, you could easily spread out your money to avoid that (put it in multiple banks and multiple CDs).

These are, effectively, risk-free investments. Sure, you might lose your money if a meteor takes out America… but I think you’ll have bigger problems. Meteor strikes aren’t exactly an investment risk.

Given your hypothetical about CDs, do you really think that it’s feasible that the owner of $10 million is able to open accounts at 40 different banks?

Secondly, do you know how bond investing actually works? The value of bonds is inversely proportional to the current interest rates. True, we’ve had low interest rates for a considerable period of time. But as sure as the sunrise, interest rates will go up in the future. Guess what happens to the retiree’s bond portfolio then? She loses money.

[DrDeth]

@D_Anconia

What benefit does a higher capital gains tax have to society? Be specific.

More funds in the Treasury. Everyone pays the same for the same level of income. Fewer tax shelter scams.

[DrDeth]

@D_Anconia

Liquidity in the financial markets.

Liquidity for who, and how does that benefit Society as a whole?

[D_Anconia]

@DrDeth

More funds in the Treasury. Everyone pays the same for the same level of income. Fewer tax shelter scams.

Virtually no one believes that a lower tax on capital gains is a “tax shelter scam”.

[Bone]

@DrDeth

Liquidity for who, and how does that benefit Society as a whole?

Lack of liquidity has the potential to impact everyone. An example:

The financial crisis of 2007–2008, also known as the Global Financial Crisis and 2008 financial crisis, is considered by many economists to have been the worst financial crisis since the Great Depression of the 1930s.[1] It threatened the total collapse of large financial institutions, which was prevented by the bailout of banks by national governments, but stock markets still dropped worldwide. In many areas, the housing market also suffered, resulting in evictions, foreclosures and prolonged unemployment. The crisis played a significant role in the failure of key businesses, declines in consumer wealth estimated in trillions of U.S. dollars, and a downturn in economic activity leading to the 2008–2012 global recession and contributing to the European sovereign-debt crisis.[2][3] The active phase of the crisis, which manifested as a liquidity crisis, can be dated from August 9, 2007, when BNP Paribas terminated withdrawals from three hedge funds citing “a complete evaporation of liquidity”.[4]

[iiandyiiii]

@D_Anconia

Given your hypothetical about CDs, do you really think that it’s feasible that the owner of $10 million is able to open accounts at 40 different banks?

Combined with solid and safe bonds, it’s definitely feasible to earn nearly risk-free investment income. Multiple banks for CDs, some treasury bonds, perhaps some other low-risk investments, and yes – very easy, and very feasible.

Secondly, do you know how bond investing actually works? The value of bonds is inversely proportional to the current interest rates. True, we’ve had low interest rates for a considerable period of time. But as sure as the sunrise, interest rates will go up in the future. Guess what happens to the retiree’s bond portfolio then? She loses money.

Only if she wants to sell the bond. If she’s relying on the coupon from the bond, then she’s fine.

Suppose I have $10 million dollars. I put it all in 10 year treasury bonds at 4%. The value of those bond may fluctuate, but each year no matter what the value is, I earn $400,000 from the bonds, and in 10 years I get my $10 million back.

That’s a safe and risk-free investment, as long as I’m willing to hold it until it matures.

[D_Anconia]

@DrDeth

Liquidity for who, and how does that benefit Society as a whole?

Liquidity for the market. No one would invest in PG, or AAPL, or whatever, if there weren’t a secondary market in which to trade it.

[Bone]

@Happy_Fun_Ball

Yes. I few things.

First, how about some proof that capital gains tax rate and investment rate are related in the way you are contending. I agree with you in theory that there is a relationship, but I believe it is not the simple relationship you and Sam are claiming. Over the past 40 years we have had many different capital gains tax rates, show me how investment rate correlated.

I can’t provide the rate of investment as a factor of capital gains tax rates and it was never my intent to do so. As I mentioned in post #165 - first you have to acknowledge the relationship, which you did above. Then you can begin the discussion on the extent of that relationship.

Next, both you and Sam keep claiming that investment has risk while being a laborer does not and I do not see how this is the case?

See post #186 for an example.

Several years ago I had several companies vying for my employment, I chose one and was laid off 6 months later, could not find a job, and blew through my savings as a result. I lost a lot in this transaction, years of savings wiped out because of my decision. Are you saying that there was no risk in my employment decisions? How was my income “guaranteed” as someone said above?

You are conflating different types of risk. Your paycheck for any day worked was not at risk. Your long term prospects or job security is always at risk, but that’s not what is being referred to. Your income was guaranteed to the extent you did work - that means your employer wasn’t going to stiff you on your wages.

[D_Anconia]

@iiandyiiii

Combined with solid and safe bonds, it’s definitely feasible to earn nearly risk-free investment income. Multiple banks for CDs, some treasury bonds, perhaps some other low-risk investments, and yes – very easy, and very feasible.

It’s not feasible. An investment of $10 million in CDs would require 40 different banks (not branches) to get FDIC insurance.

Only if she wants to sell the bond.

But if she’s relying on her investments for retirement, she’s going to have to sell assets at some point, especially if she only has $100,000 rather than $10 million.

I put it all in 10 year treasury bonds at 4%.

When was the last time that Treasuries were paying 4%? :dubious:

[Terr]

@iiandyiiii

Suppose I have $10 million dollars. I put it all in 10 year treasury bonds at 4%. The value of those bond may fluctuate, but each year no matter what the value is, I earn $400,000 from the bonds, and in 10 years I get my $10 million back.

That’s a safe and risk-free investment, as long as I’m willing to hold it until it matures.

And if two years after you put the money in the inflation goes above 4% and stays there, you will be losing money every year until the 10 years are over. Or you will sell the bonds and lose a percentage of the principal immediately. Is that “safe and risk-free”?

[chargerrich]

@BobLibDem

Mr. Gotrocks invests 0.1% of his fortune in a company and may lose it. Cry me a river. Joe Sixpack invests 20 years of his life in a factory and it goes under and he’s too old to find a job. Yes, Joe WILL get paid for the time that he works, but he has no security that the job will be there tomorrow.

And how in the “wide world of sports” (blazing saddles had to do it) does that relate to the income risk in direct correlation to investment discussion?

Joe Sixpack got paid for 20 years by your very own argument… 20 years, paid for every day he worked. And now he can find another job. But it seems you now want to throw in the potential - that we all face - of not be guaranteed a LIFETIME wage as your case that income risk is >= investment?

Your argument sir… has gone off the rails!

[Bone]

@Terr

And if two years after you put the money in the inflation goes above 4% and stays there, you will be losing money every year until the 10 years are over. Or you will sell the bonds and lose a percentage of the principal immediately. Is that “safe and risk-free”?

There is a difference between interest rate risk, principal risk, and inflation risk. I think the majority of this thread has been focusing on principal risk but in the above quote you are discussing multiple types.

And on a side note, the rate on a US 3 month treasury is usually treated as the “risk free rate of return” since any risk it carries is negligible. On that point, iiandyiiii is on target. It isn’t anywhere near 4% though.

[DrDeth]

@d'anconia

it’s not feasible. An investment of $10 million in cds would require 40 different banks (not branches) to get fdic insurance.

But if she’s relying on her investments for retirement, she’s going to have to sell assets at some point, especially if she only has $100,000 rather than $10 million.

When was the last time that treasuries were paying 4%? :dubious:

2007/8.

[Terr]

@Bone

There is a difference between interest rate risk, principal risk, and inflation risk. I think the majority of this thread has been focusing on principal risk but in the above quote you are discussing multiple types.

And on a side note, the rate on a US 3 month treasury is usually treated as the “risk free rate of return” since any risk it carries is negligible. On that point, iiandyiiii is on target. It isn’t anywhere near 4% though.

Thing is, iiiandiiii thinks that by sticking money into Treasuries you’re somehow guaranteed not to lose money. That’s wrong, as I demonstrated. There are no such guarantees. Even TIPs are not 100% safe, since government can fudge inflation numbers so that in real life you will be a loser.

[D_Anconia]

@DrDeth

2007/8.

Why are you altering my quote? I did use capitalization.

[chargerrich]

@iiandyiiii

Not all bonds. US treasury bonds are an example of a (for all intents and purposes) risk-free investment. And for CDs, you could easily spread out your money to avoid that (put it in multiple banks and multiple CDs).

These are, effectively, risk-free investments. Sure, you might lose your money if a meteor takes out America… but I think you’ll have bigger problems. Meteor strikes aren’t exactly an investment risk.

Not to nitpick but…

1. Bonds lose value QUITE EASILY. (Bond prices move opposite of interest rates)

2. A CD is barely a real investment tool and to use that as your example investment vehicle is pretty telling.

3. While the FDIC does protect some small investments/investors, they have limitations (I believe 250k). This means is it still very easy to lose vast sums of money.

Fact is there are “safer” investments, but nothing NOTHING that is without some level of risk.

[DrDeth]

@chargerrich

but nothing NOTHING that is without some level of risk.

Well, if you listen to the Gold Bugs, Gold is completely 100% foolproof, whose value never decreases. :rolleyes::dubious:

[Bone]

@Terr

Thing is, iiiandiiii thinks that by sticking money into Treasuries you’re somehow guaranteed not to lose money. That’s wrong, as I demonstrated. There are no such guarantees. Even TIPs are not 100% safe, since government can fudge inflation numbers so that in real life you will be a loser.

I would say the 3 month treasury has effectively zero principal risk. It will be subject to interest and inflation risks for sure.