I want to repeat a point that I read in one of Jim Roger's books. He was in favor of repealing all capital gains taxes simply to allow individuals an option in the fight against inflation. The example is of a person who has enough cash for 100 cheeseburgers. They decide to put that money in something like gold. The government prints lots of money causing inflation and the nominal value of the gold is now much higher. If the investor sells the gold he still has enough money to buy 100 cheeseburgers. However the government will say that he has a net capital gain and must pay tax.
Jim Roger's point was that without capital gains tax people could put their money into any form that they thought would preserve their wealth better than fiat currency. With capital gains we all become speculators trying to beat inflation and still realize a net profit after taxes.
I get the point, and agree with it somewhat. However, this truly seems like a perfect example of treating the symptom while ignoring the cause.
Since this is all theoretical, wouldn't it make more sense to just stop governments from stealing the wealth of the people through the hidden 'inflation tax?'
Vague complaints about "inflation tax" do not contribute anything constructive to monetary policy discussions. No one disputes that excessive inflation is a regressive and unsustainable tax. Currency collapse is almost always caused by, or at least mediated through, governments using inflation to pay debt (or, more accurately, to partially default on debt). Preventing this is the primary reason modern central banking exists. Even those opposed to this solution still support its goal; the "End the Fed" movement wants less inflation, not more.
Nobody--whether left, right, liberal, or fascist--thinks inflation is a good way to finance government. The only disputes are how to prevent it from doing so, as those in office have constant incentive to favor short-term stimulus over long-term stability, and how to balance such restraints against other goals like preventing deflationary shocks and making monetary inflation reflect growth in the real economy.
Suggesting we stop taxing with inflation instead of minimizing its drawbacks is no more helpful than saying, "We should start preventing murders instead of building prisons," or, "Let's reduce the violence in Afghanistan instead of endangering more of our soldiers."
The fatal flaw in democracy, as identified by Ben Franklin, Alexis de Toqueville, and Karl Marx, is the mass of voters will eventually elect to raid the treasury. This is a systemic problem.
The short-coming of republican government is the humans entrusted with preserving it will undermine the rule of law in various ways, suggesting this ideal form cannot be achieved.
Modern western representative democracies today face a two-pronged problem. The people have voted themselves an ever-more-generous welfare state and the state bureaucracies, for many complex reasons, have failed in their oversight responsibilities.
The most likely scenario is we muddle through it somehow and life goes on.
Capital Gains Tax is also a form of triple taxation.
If you invest in a company and make a capital gain of $100 million, the capital gain is valued at $100m because that's the expected increase in profit take of that company over its lifetime.
That profit will be taxed once through corporation tax, and then a second time through dividends tax. Capital gains tax is a third tax on these profits.
You're correct about (corp tax + cap gains or corp tax + dividends).
What I'm pointing out is that this theoretical future $100m in value is being taxed once through capital gains tax for the person that created the value, then a second time via corporation tax when that value manifests itself as a profit, then a third time when someone tries to take that profit as a dividend. And possibly fourth when estate tax is paid. That's a lot of tax.
...and before the coin drops into the company's coffer, it's already been taxed as income against the person that earned it to spend, and before that as corporate tax against the corporation that employs that person, and as income tax against the people that bought that company's products, and so on.
Income tax taxes every transfer of wealth from one entity to another. That's just the way it works, the government takes a cut of the profit that anyone realizes at every hop.
I can't fathom any reason that income I obtain by betting on Apple should somehow magically be more exempt from taxation than income I obtain by betting on poker, working a dead end finance job, or selling my old crap on eBay, all the money from any of those sources has already been taxed dozens of times.
If you invest in a kleptocracy, capital gains tax is the least of your worries.
If you don't kowtow to the right people, murky authorities seize your business on trumped up tax charges, and anyone who fights dies mysteriously in jail.
Not sure this is hacker news, but if it is, could we skip the blogspam and link straight to the article (http://news.bbc.co.uk/2/hi/business/10349679.stm)? The blog post doesn't add any value.
Agreed that the link should go to the BBC source article, but for what it's worth, general business/finance stuff is generally considered to be on topic here, because of the large overlap with general finance topics and startups.
I agree that the connection is tenuous, but long-term capital gains taxes are of special interest to founders since they affect their net returns on exits.
For someone like me, a European interested in doing startups, this is very interesting. Depending on controlled foreign company (tax) laws this might mean Russia will become a zero tax jurisdiction for business owners with income from patents, licenses, domain names, ecommerce etc. If these sources of income belong to companies in countries with zero corporate tax.
Edit: Russia does not (at the moment) have CFC laws. It may be time to learn russian...
The person speaking in the video identifies himself as an employee of the Cato Institute, it's not hard to imagine why I made the mistake. Not to mention the fact that half of the board of directors (and some of the listed experts) of the Center for Freedom and Prosperity work for or have worked for the Cato Institute.
In any case, you are correct, the video was created by the Center for Freedom and Prosperity, and I apologize for the error.
I don't mind people agreeing with the slant because it is a fair economic argument to make but to just mark me down for pointing out the slant is harsh IMO.
That video was full of stuff complaining that you get taxed on EARNINGS from investments and trying to equate that to being taxed twice on the same principal sum. This is nonsense.
You're being taxed for earnings and then earnings made from those earnings. That's two separate sums.
The chap was trying to make out that people were being punished for saving as opposed to spending but failed to consider consumption taxes such as sales tax or VAT (in Europe). You don't get punished for saving, you place your money in the bank and it remains there, no punishment.
You do get punished for earnings gained by those savings but that's to be expected because that is technically income.
It's not enough to get me to do business in a country lacking rule of law. While I respect the functioning of the Chinese economy, I also wouldn't start a business there for the same reason. Usually I am comfortable with risk, but shakedown by government under threat of extreme lack of liberty, torture, or death is a risk that really messes with my expected value calculations.
It's misleading to compare china to russia like this[1], commercial law in general (IP rights being an exception) is paid more respected in China than in Russia. As a businessman in the former you don't face the risk of "shakedown by government under threat of extreme lack of liberty, torture, or death" in Russia the risk to both your property (apart from IP) and personal safety is considerably larger (and less predictable).
For folks interested in China: please please visit the country first. Business there is all about networking and inside connections, and fraud is a large problem. The business culture there is completely different from anything in the Western world, so please leave your preconceptions at the airport.
I'm aware that China is safer to business people than Russia, but I still do not trust the CCP enough to do business with them. Look at what happened with Google.
You're right, "what happened to google" was neither unpredictable nor unavoidable. The decision to stop cooperating with the CCP was commendable (and probably good for the shareholders too) but they were not forced out.
Since, as the blogger put it, "The former communists running Russia apparently understand tax policy better than the buffoons in charge of U.S. tax policy.", he must be in favor of the US having a VAT, like Russia does.
I'm not accusing you of this, but a common misconception I've seen from Americans is that VAT is "yet another tax." It's (usually) not. In California, I was paying 8.25% sales tax (and this can go up to 10.75% with some local sales taxes added) and in the UK I pay 17.5% but there are no sales taxes, and certainly not any "local" ones I need to be aware of. A can of coke that costs 60p in London costs 60p in Edinburgh too.
Most Americans who are A: informed enough to know about VATs and B: against their introduction here are concerned that it would be instituted as just another tax here. Resistance would be lessened if there was a credible promise to simplify the rest of the tax code (not eliminated, but lessened), but I don't know who has the moral authority to make such a promise right now, whereas I have a pretty clear idea who has the legal authority to institute a VAT. The motivation for it being discussed in the US is not for it to be a revenue-neutral modification to our tax code.
An additional problem with VAT is that it is mostly transparent to the people being taxed.
If you raise my taxes with VAT, I'll notice prices of assorted goods going up slightly, be too lazy to add up the various cost increases. If you raise my income taxes, I'll immediately notice that I'm $2000 poorer than I was before, and maybe I'll vote for the other guy.
Your argument is what I was thinking of when I said "not eliminated, but lessened". I'm against it for that reason too, but I am pretty sure many people are resisting simply because it would be a tax increase.
I also think that the stealth nature of the tax is the actual reason it is being discussed, but I figured that was getting political, and what I posted was fairly defensible on (relatively) objective grounds.
That isn't a "misconception", at least not wrt the US. As others have pointed out, a VAT is being suggested by some people as a way for the government to raise additional revenue. A typical argument (this from a libertarian-oriented economist) might be something like:
In the US, there are separate state and federal taxes. The sales tax in California is a state tax, whereas the VAT idea that's being floated would be a federal tax. That's why adding a VAT in the US would not supplant any existing sales taxes (or state income taxes).
Spurring investment in a country whose economy subsists almost solely on oil and coal controlled by former soviet Politburo officials and their hanger-on thugs, who then "nationalize" and otherwise stifle outside competition. Then they all hole up in their high-rise Onion domes in Moscow while the rest of the country fights for the scraps in an all-grey market economy.
Sounds like a sound business plan to me. Where do I sign?
Equally sarcastic and condescending, but far more nuanced. It's a requirement of people who work for think tanks or politically motivated organizations -- on both sides of the isle -- to over-simplify. For people who study politics, economics, or whatever, it's infuriating. At the same time, you almost can't expect anything else; democracy is a game where you win when you have the most (marginal) voters. You enlist them easier through anger than rationality; Rationality requires work on behalf of voters.
Breaking News!! Protests break out by people who sold investments yesterday!!
(Just kidding. The value gain to existing investments from this new law will only cause a small immediate jump in prices, and the rest will ramp up gradually over the days before the change goes into effect.)
wouldn't it make more sense, assuming they are trying to incentivize investment, for this change to apply to investments made after the change takes effect?
