No, the bubble bursts, we hit a recession and life sucks again…its likely to be a short term patch. Unless, as Voyager said, you could deflate slowly, which isn’t likely happen. This isn’t a GOOD idea - but its not an unlikely consequence of a 0% short term capital gains rate.
BTW, this is basically the stock tech bubble of the 1990s, although that wasn’t fueled by 0% tax rates, but by hype over the “new economy.”
Why would they be induced to spend? Spending often incurs a sales tax. Maybe the day trader and the colorist will both just park their money in some tax haven like stocks.
There’s no logical reason to tax wages and not tax investment income - both are important sectors of the economy. The reason for it is that people who live on investment income tend to have more influence on the government. That’s why investment income is already being taxed at less than half the rate of salaried income.
The most pronounced effect is going to be a recharacterization of all sorts of ordinary income into capital gains income. Its already happening but if the rate were in fact zero, people would reorganize their lives so that as much of their income was capital gains as possible.
If you think the value of assets are going to go down, you don’t care what the tax rate is, you hold onto cash. If you think the value of assets are going to go up, the difference between a 15% capital gains rate and the 20% capital gains rate we had under Clinton is marginal.
I find it fucking mindblowing that we have close the lowest tax rates in our history and some people are STILL bitching and moaning. There is no satisfying these folks, I don’t see why we even try. Do what is good for the country (which soemtimes means cutting taxes) and ignore these guys entirely.
It’s not unreasonable to believe that the Laffer curve would skew lower for investment income. For the well-off, investment income is more likely to be discretionary, so they can leave it locked in if the tax on capital gains goes too high, more easily than wage-earners can decide to avoid wage income. So a lower rate on capital gains may actually be revenue-maximizing (while still seeming unfair).
Do you have any idea how silly that is? So the rich, afraid that capital gains taxes may go up, are investing their money in bonds (or something) paying normal income tax rates on it because someday capital gains tax may go back up to a level that is still lower than regular rates. Gonzomax got it right. We have an oversupply of capital right now, and and not enough on the demand side. Continuing to push demand side remedies is insanity. And, as other posters have noted, investors would unload all their capital gains to take advantage of not having to pay taxes on it. The resulting fire sale would cause prices to spiral downward.
At least in the past, when you temporarily reduce tax rates, the frenzy of selling generates a short term burst of capital gains taxes before it settles back down.
I’m going to guess that I have a pretty firm grasp on how capital is formed, especially venture capital and I gotta tell you that taxes are generally the least of their concerns. The reason that venture capital has dried up recently has NOTHING to do with taxes, it has everything to do with the economic outlook. If this was 1998, we would still have had the Dot com boom even if capital gains were taxed at 28% instead of 20%. Sure they would like to keep more of their money but they would rather get taxed 28% on something than 28% on nothing.
Probably both. I think there was one year during reagan’s term when income taxes were lower than they are today and capital gains taxes were never this low before.
So if the capital gains has opposite effects on the buyer and the seller then are you saying that the effects offset each other or are you saying whatever makes tax cuts look good?
Perhaps if we lower the capital gains tax to zero and fan the wealthy with palm fronds, they will deign to invest in business and job growth at the behest of the Magical Confidence Fairies.
I didn’t think the Democrats were being that coy. I thought it was pretty damn clear that theywere going to preserve the Bush tax cuts for families making less than 250K and letting the rest of them expire.
I presume you are talking about the “carried interest” provisions taht are workign their way through congress right now? Do you even understand what the issue is?
If you manage my money for me and i tell you, “hey Ida, I will pay you 2% of assets undermanagement and 20% of any gains” is the 2% compensation? Is the 20% compensation? If so then why the hell should you be able to pay capital gains on it jsut because your income derives from income that is capital gains in my hands?
Oh wait, there is a technical rule (that was intended for use by oil wildcatters) that says that you should actually be treated as my partner and therefore you get flow through treatment of the income you derive from teh fund.
Well there is also a technical rule that says that gifts are nto taxable and get my gift to my waittress at the end of every meal always gets taxed as ordinary income.
BTW, if certainty is really all you need then why the heck do you care if there is a permanent special rule for hedge funds and private equity funds?
You notice how daytraders buy and then sell? Their buy order drive the amrket up adn then their sell order drives it down. Daytrading doesn’t really drive markets.
The beauty of this mess is the corporations offshored so many of the good jobs, that the wealth of the consumer has plummeted. You can not count on the consumer because he is stagnating or facing a scary future. We need to create jobs in America not China. But if short term profits are enhanced by brooming American labor, it will be done.
It used to be that the buying power of the American consumer ran the products that were made. Now we look at the market in China and India for the future. We have to build cars they want.
Consumer confidence is down. Hiring would change that but it is not in the cards. There is no room for favoring America in corporations. They are international and we are just another market. We better get used to it. we are on a steady downslide .
A lot of people who think yahoo investment strategies like daytrading (and daytrading is the simplistic side of this) contributed to the tech bubble of the 1990s would disagree with you. Sheep like behavior drives markets. Hype drives markets. Short term gain drives markets.
I don’t know what you are being snarky about - this is exactly what happened during the bubble - in fact both bubbles. People who feel rich - either from their stock investments or real estate - spend more. It is simple psychology. When I was a theoretical millionaire during the tech bubble I did it also.
The problem is when people get into debt doing this and then see their theoretical wealth vanish.
What are you - some kind of socialist? Anyone can tell you that the rich are the best stewards of capital so the smart thing to do is give them more money. Zero taxation isn’t enough - we need to give them matching funds. For every dollar they invest, the government should pay them a dollar.
This must be true because all of the wealthy pundits who appear on television shows owned by multinational corporations agree that the economy benefits from policies that favor the wealthy and corporations.