I think Sam did a pretty bang up job on explaining it. Is there anything that would convince you?
Coming back to this though, if I get a dividend (income) and roll it over back into my fund and reinvest it, I do not pay taxes on that income. But if I work and invest 100 percent of my income into the same fund, I still have to pay taxes on the income before I can invest it. Why is that?
Where? I must have missed it (seriously).
If you haven’t been paying taxes on your reinvested dividends, you may want to talk to an accountant and a lawyer.
Why should government encourage investment? Doesn’t the free market do a good enough job of that? It’s not like the investor class has somewhere else to put their wealth. The notion that capital will flee the market if they don’t get preferential rates is nonsense.
Please describe the cost benefit analysis you perform for your investments, and we’ll show you how the tax rate fits in.
Oh, then I guess I do pay taxes on my dividends when I roll them over. To be honest, I probably don’t pay the attention that I should to all the crap that I send to my accountant every February. I’m an engineer not an accountant and i truly hate dealing with investments and money…
Oh, I understand cost/benefit analysis and risk, I do it all the time at work. Hell, I have weekly risk management meetings where we talk about likelihoods, impacts, costs, and mitigation strategies. I think you and Bone are missing the point. My guess is that when Bone said Sam did a bang up job he was talking about this:
I agree with everything here, but the numbers are just pulled out of his ass. How many investments fail 80% of the time and give a 400% ROI 20% of the time? I asked Sam to quantify the average risk of investing given the data over the last 20 years. I tried to help, by comparing my “guaranteed” (Sam’s words, not mine) income against the average rate of the S&P 500 but I don’t think he understands what I am asking.
I understand that a tax over 20% makes the ROI of the hypothetical investment negative, my question is how realistic given real world market data in aggregate is the hypothetical. I am unconvinced that a 32% percent tax on capital gains over a certain amount (call it 186,000 since that is roughly the marginal tax bracket) will make a majority of potential investments non-viable.
I for one would like the government to not discourage it any more than it already does, as my earned income benefits from others’ risky investments. As does my quality of life due to the consumer goods those investments have brought about. Money may not leave “the market”, but portfolios are allocated based on risk and expected return. I’d rather have the wealthy pumping money into VCs and tech IPOs so that I can have my iBrainImplant rather than driving bond rates to shit and holding more cash.
It doesn’t have to make them non-viable. It just has to make them much less attractive, which will cause a corresponding reduction in the level and amount of investments. And you have to agree that it does.
The VCs I work with typically have 80% of their companies tank. And they’re making OK returns overall.
Yes, but I could make the same argument about labor, why do we use taxes as a disincentive to those wanting to work?
We shouldn’t. Glad you agree.
I believe it. I have worked at several VC funded startups and I am well aware of their track records. But that is not what I am asking, I want to know if your VC is a fair example of all investors? Can we set national tax policies on capital gains based upon the investments of the company you work with or do we have to take into account the performance of all investors? What is the average experience of investors? Can we use the S&P as a proxy? In that case, I out performed the S&P but I make more than twice the averager working in this country.
Do you understand what I am asking?
This is my problem with the Laffer curve. We can all agree that tax revenue goes to zero at the extremes of zero percent tax and 100% tax, but this tells us nothing about the optimal tax rates.
First we have to agree what “optimal” in the “optimal tax rate” is. Optimal to extract as much money from people as you can? Optimal to maximize growth of the economy? Optimal to only get the money to fund the government? Optimal to let the Congress play their various social engineering games?
I assume you are a fan of the FAIR tax. I don’t like it becasue it is too regressive; people just scraping by would pay 20% of their income (or whatever the rate is - poor people spend 100% of their income and save nothing) in tax, while I would pay much less as I save or invest more than 30% of my income. People who make twice as much as I do or more (and i know several people like this) don’t spend that much more than I do. So tax rates are flat for those making less than 50-80 thousand a year at whatever rate you set the consumption tax to, but then decrease rapidly to small percentages of income as you go up the income ladder.
I would prefer a flat tax with capital gains treated like income.
No, I am not a fan of social engineering. I am not a socialist and don’t believe in income redistribution. What I want to know is why I pay twice the tax rate on the money I make by going into the office everyday and working 50 hours a week compared to my neighbor who is selling off investments that he made 20 years ago and is living off the gain which just happens to be equal to my income.
The “why” question is kinda silly. The answer is “because the tax code says so”. The answer for “why does the tax code say so” is “because the Congress wrote it this way”. And the answer for “why did the Congress write it this way” is unfathomable unless you can read the minds of the Congress-critters that voted for it and the Congress-worker-drones who wrote the actual legislation.
You may try to guess at the answer. My guess is that it’s the mixture of “encouraging investments is more important than encouraging work” and “workers don’t give us campaign contributions, investors do”.
nm
What if your neighbor earned all of that money through employment, before he invested it? Should he be taxed twice?