Back in the days -- 30+ years ago -- I remember reading that the one year holding period for long term capital gains made more good investors out of otherwise poor traders than any other idea from government or the financial industry.

very happy to find your blog and commentary
will include it in alternative media lists for membership and check regularly

Dear Dean... Aren't you going to also give some red meat about last night's discussion of the "social security crisis"... and why Obama has bought into the Washington consensus to increase taxes on the upper middle salaried wage earners?

Alas, Clinton is more right on this one.

The real story is how 'the media'(a handful of large corporations) is often jamming bad economic ideas that benefit the rich down our throats.

If (a) It is true that cutting capital gains taxes raises more tax revenue for the government; and if (b) we would like to reduce the amount of taxes people pay; then it would seem to make sense to raise the capital gains rate so that the government would take in less money and taxpayers would get "relief."

Or does the arrow of Gibson bullshit only fly in one direction?

But isn't it true that if you cut taxes on the rich and on their investments that everyone becomes happier and healthier and more beautiful?

That's because rich people make everything happen sheerly through willpower and the force of their entrepreneurial spirit.

They should not be asked to pay for a nation which provides a context within which they can succeed. Instead we need to reward them for their telepathic sui generis creation of a nation and an economy.

This is why countries with no taxes and which are free of burdensome regulations like Somalia are such economic powerhouses, unlike the struggling nations of Western Europe, Scandinavia, and Asia.

Thanks Dean for the comment on cap gains. There were many idiotic questions in the debate, but at least this was a new one. Some great comments from your readers. Let me add (but probably not great) a couple of more.

1. Pushing 60 and a retired finance mgr. who likes to dabble in tax policy (I know, get a life), my thought for many years have been to eliminate the cap gains distinction and tax all income, earned or not, as ordinary income. One step toward simplifying taxes. (haven't read Ezra's blog post yet, that's next).
The main reason is, I don't recall ever seeing any serious research that taxing cap gains separately has any beneficial impact on investment. And to Ethan's point, neither the short and long-term distinction.

Dean, is there any clear research on this issue, or just another Wall street Lafferable fantasy like revenue producing tax cuts?

2. Gibson mentioned 100 million!!! investors could be affected by increasing the cap gains rate. Well, assuming 100 million stockholders is a reasonable estimate, I assume 80-90 million of those hold their stock only in IRA's or 401-k's, the use of which at retirement will in any event be taxed as ordinary income. And of the remaining 10-20 million, the vast majority of cap gains is held by a very small percent. I.e. increasing the cap gains rate (or my preference classifying cap gains as ordinary income), would be consequential to only a small percentage of high income earners.

Am I off-base here?

Why no discussion of the fact that taxation of gains has no adjustments for inflation?

Dean,

Re: "the evidence that a capital gains tax cut raises revenue is rather dubious, since most of the apparent increase is likely due to timing: investors delay selling stock when they know a tax cut is imminent. After the cut takes effect, they then declare their gains and pay taxes at the lower rate.

EXACTLY !!! And it is outrageous that Charlie Gibson would insist -- INSIST -- on his false premise and demand that the candidates respond based on that premise. Is it too much to ask that a moderator check with an expert on some matter -- in this case a...ya' know...an ECONOMIST -- before insisting on some "fact" and demanding a response based on that "fact"??!!

Even conservative economist Greg Mankiw (former Chairman of W Bush's Council of Economic Advisors, advisor to the Romney campaign) estimated that the ultimate revenue feedback is only 50%). Mankiw said:

"In a paper on dynamic scoring, written while I was working at the White House, Matthew Weinzierl and I estimated that a broad-based income tax cut (applying to both capital and labor income) would recoup only about a quarter of the lost revenue through supply-side growth effects. For a cut in capital income taxes, the feedback is larger--about 50 percent--but still well under 100 percent. A chapter on dynamic scoring in the 2004 Economic Report of the President says about the the same thing." http://gregmankiw.blogspot.com/2007/07/on-charlatons-and-cranks.html

Did you hear that, Charlie Gibson, you lazy, irresponsible simpleton (who apparently made a couple of anecdotal observations of coincidence and drew a wildly sweeping, erroneous conclusion)?? A revenue-feedback of only 50%, "well under 100 percent", does not equal increased revenues. Do your f--king homework, you jack*ss!

Reducing the capital gains tax may not even raise investment demand - as explained by a paper that I link to over at Angrybear.

I don't think you have to claim that cutting the capital gains tax is good for the government. To me the main argument against it is that it is a tax on savings and our savings rate is terrible.

How about we set the tax code up so that rich people who live off interest and investments are taxed on that at the income rate and people who are just saving for retirement are not? That is, you either pay income tax on salary or investments, whichever is larger...

Tax receipts on capital gains are essentially a function of the stock market. When the market is up capital gains tax receipts rise and when the market fall tax receipts fall.
The rate of taxation plays only a minor role.

Gibson is guilty of confusing correlation with causation.

Erik L wrote, To me the main argument against it is that it is a tax on savings...

It isn't obvious that this is so.

A large fraction of "capital" is in fact the site location of land. Investing in land isn't true investing, in the sense that no wealth is created. Rather, it's just a government-granted title to extract wealth from others.

Land prices, as J. S. Mill well understood, don't rise due to the activity of the landowner; they rise from the activity of the other actors in the economy. Thus, capital gains on land could be taxed at 100%, and it wouldn't harm the economy one bit; in fact, it would help it by preventing the hoarding of useful land in anticipating of a capital gain.

I imagine Charlie Gibson either asked two of his neighbors (not mine, not yours) or consumed a few hours of CNBC or Marketplace.

Of such research is his concern about the capital gains tax born.

He couldn't be bothered to check out anything, even what constitutes a middle-class income.

Perhaps we should roll some tax rates back to where they were in 2000. But the rich might suffer under such a burdensome load, as badly as they did in the '90s.

I think even a conservative economist can see that if you give people a choice between a 15% tax and a 33% tax, they'll choose 15%. The rhetoric is not about increasing tax revenue, obviously.

Decreasing capital gains taxes on true capital investment may be a great idea for the country. But, wait! Most of what we call capital gains are not from capital investment as liberal alludes. Let me explain what I mean.

Assuming IBM has not issued any new stock, if you purchase IBM at $30, the sell it later for $40, that is speculation gain, not a gain from capital improvement. No matter what you pay, what you sell at, nor your gain or loss, has any effect on IBM. They do not make any greater investment. There is no new capital formation. Have I belabored that point long enough?

There are three factors of production, as everyone here probably knows: capital, labor and raw materials. Individuals who put up the capital should be rewarded for the improvements that capital has paid. Once the original investor sells his/her share, the new owner is speculating about the ability of the business to grow based upon the original capital investment.

Perhaps I am missing some fundamental economic concept. If not, then, in my opinion, having a reduced rate for true capital gains makes sense. Conflating the concept of speculation, even if it is carefully researched enough to be considered an investment (per Benjamin Graham's definition), it is still speculation and should be taxed differently, and at a higher rate, a rate that should at least equal the rate labor income is taxed.

bill turner wrote, Individuals who put up the capital should be rewarded for the improvements that capital has paid. Once the original investor sells his/her share, the new owner is speculating about the ability of the business to grow based upon the original capital investment.

While your point about the secondary market representing no new capital investment is true, it might be very difficult to keep track of who made the original investment. Also, it's not clear that it's particularly unjust for someone to reap the income from capital ("profit" or "interest" in the economic sense of "returns to capital").

Contrast that to economic rent. Contrary to what the government statistical agencies will have you think, land rent is probably 10--20% of GDP. That's all income accrued for doing absolutely nothing.

Not to mention other economic rents, like so-called intellectual property rights, or other land rents like income accruing to effective ownership of electromagnetic spectrum or free mineral wealth giveaways.

I wrote, "Also, it's not clear that it's particularly unjust for someone to reap the income from capital"; I meant of course "someone other than the original investor".

bill turner wrote, There are three factors of production, as everyone here probably knows: capital, labor and raw materials.

Would that it were so.

The amount of ignorance even among trained economists regarding land as a factor of production is nothing short of amazing.

Even our good, usually knowledgable host Dean seems ignorant---he made a remark a few months ago in a comment section here that he didn't see why housing shouldn't be amenable to the same downward price pressures over time that other goods are. (Difference, of course, being that they aren't making any more land.)

bill turner wrote, Perhaps I am missing some fundamental economic concept. If not, then, in my opinion, having a reduced rate for true capital gains makes sense.

No, because a huge fraction of capital gains is in land, where the gain is just capitalized economic rent.

This is all wrong.
What Dr. Baker fails to note is that Morton Kondracke took Obama's desire to raise the capital gains tax as a demonstration that he "does not understand capitilist economics." Obviously, lowering capital gains taxes increases investment and accelerates growth. If what Dr. Baker wrote above is true, that would mean that Mort Kondracke is a moron, and if that were the case he wouldn't be on Fox News. QED.

a) Cutting taxes raises revenue? Haven't we heard this before, and is there no empirical evidence, such as actual changes in overall revenue after big tax cuts, to test it?

b) Why do we have corporate income taxes anyway (this one is not a rhetorical question)? That is, why not tax all personal income the same? Exactly what economic objectives are furthered by taxing the income of corporations?

c) The present system of special capital gains and dividend taxes is obviously highly flawed in several ways. It taxes inflation, but above all it encourages short-term speculation. For capital gains to be defined as "long-term" if they are over one year is absurd. Does there need to be more incentive for investors to try to make a quick buck?

«Why do we have corporate income taxes anyway (this one is not a rhetorical question)? That is, why not tax all personal income the same? Exactly what economic objectives are furthered by taxing the income of corporations?»

Well, because of expediency really: it is better as purely practical matter to raise the same revenue with a number of smaller taxes on different things than a single large tax.

It is better in part because each individual smaller tax is less worth cheating on, but also to spread the load; each and every tax has some unintended negative consequence, and taxing a bit of everything minimizes the trouble.

«The present system of special capital gains and dividend taxes is obviously highly flawed in several ways.»

Perhaps from your point of view, but from the point of view of Republican campaign donors it works very well indeed, maximizing via sales and payroll taxes the amount paid by the poor and minimizing the amount paid by the wealthy who can pay tax accountants to turn income into capital gains.

Excellent point: reagan did equalize the rate for capital gains with that of ordinary income.

Where is the quotation? Even better if it could be uploaded to a website.

Rog

skeptonomist wrote, Why do we have corporate income taxes anyway (this one is not a rhetorical question)? That is, why not tax all personal income the same? Exactly what economic objectives are furthered by taxing the income of corporations?

It's not just an economic objective. The fact is that corporations are persons before the law. As such, they should pay income taxes.

As Dean often points out, no one forces businesses to use the corporate form. They're perfectly free to turn themselves into partnerships.

Raising the capital gains rate also increases the income from capital gains. In late 1985, when investors knew the rate was going up in 1986, there were record capital gains. Which goes to show that many capital gains are timed and gamed by taxpayers.

For a cut in capital income taxes, the feedback is larger--about 50 percent--but still well under 100 percent. A chapter on dynamic scoring in the 2004 Economic Report of the President says about the the same thing.

Wholesale jewelry, supply vast kinds of styles handmade jewelry,mainly engage in wholesale handmade jewelry such as wholesale crystal ,wholesale pearl ,wholesale gemstone,wholesale costume jewelry,also wholesale fashion jewelry like wholesale swarovski crystal,wholesale beads,wholesale turquoise,wholesale coral,costume jewelry,shell jewelry and discount jewelry, jewelry wholesale

This is all wrong.
What Dr. Baker fails to note is that Morton Kondracke took Obama's desire to raise the capital gains tax as a demonstration that he "does not understand capitilist economics." Obviously, lowering capital gains taxes increases investment and accelerates growth. If what Dr. Baker wrote above is true, that would mean that Mort Kondracke is a moron, and if that were the case he wouldn't be on Fox News. QED.

thanksss...

http://kabinci.blogcu.com

thanks
http://yeniliginadresi.blogcu

thanks
http://yeniliginadresifm.blogcu.com

thanks
http://bghost.blogcu.com

http://filmizlegold.blogcu.com

thanks
http://yeniliginadresi.blogcu.com

http://www.fantastic-replica.net

rth http://www.fantastic-replica.net

Stop Dreaming Start Action

Dr. Baker fails to note is that Morton Kondracke took Obama's desire to raise the capital gains tax as a demonstration that he "does not understand capitilist economics." Obviously, lowering capital gains taxes increases investment and accelerates growth.

As President Reagan noted when he signed the 1986 tax reform, taxing capital gains at a lower rate than other income gives people enormous incentive to game the tax code.

I don't think you have to claim that cutting the capital gains tax is good for the government.

Obviously, lowering capital gains taxes increases investment and accelerates growth. If what Dr. Baker wrote above is true, that would mean that Mort Kondracke is a moron, and if that were the case he wouldn't be on Fox News. QED.
free mobile software

Thanks for good article
free mobile games