Trump Floats 100bb tax cut for 1%ers

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anonymous_coward
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Trump Floats 100bb tax cut for 1%ers

https://www.zerohedge.com/news/2018-07-30/trump-considering-unilateral-1...

original source: https://www.nytimes.com/2018/07/30/us/politics/trump-tax-cuts-rich.html

The idea makes sense (indexing your capital gains basis against inflation), until you realize that it creates an unbridled incentive for the government to start inflating the shit out of the currency.

The working stiffs of the country would just get reamed b/c then the wealthy elite (like Trump) would have no reason not to CTRL-P extra dollars.

Donald Trump: Looking out for the billionaires like you

Tom C
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I think there was a component

I think there was a component of the original capital gains rate that took into account the inflation value of money, even more than the "reward" for long-term investment. At one point, I think they may have had, for a very short while, sliding rates depending on how long an investment was held.

It makes sense - if after inflation you have very little gain, or even a loss, why should you have to pay tax on what amounts to a fake "profit"?

As far as government incentive to create inflation - it's a dirty way to reduce the debt - pay back trillions in cheap dollars.

Economike
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The idea makes sense

The idea makes sense (indexing your capital gains basis against inflation), until you realize that it creates an unbridled incentive for the government to start inflating the shit out of the currency.

Wait a minute. Currently, the government taxes nominal capital gains (that is, both real and inflated gains). If cap gains taxes applied only to real gains, why would that create an incentive for governent to inflate? The inflated portion of nominal gains would no longer be taxable. Where's the "unbridled" incentive?

Melvin Udall
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Anyone who owns a piece of

Anyone who owns a piece of rental property likely has to deal with capital gains taxes like I did 25 years ago. And I was not a "one-percenter." I used the equity in my home to purchase a rental property.

I'm guessing plenty of 99 percenters own such property in Maine.

JackStrawFromWichita
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Tom C,

Tom C,

There never was outright indexing of capital gains. What there was were various exclusions before tax. Sometime back in the 1980s you could exclude 60% of your capital gain before tax. Today you have preferential rates (0%, 15% and 20% plus an extra Medicare surcharge of 3.8% for higher income types).

I think it would be a good idea because then only real gains would be taxed.

Melvin Udall
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I can tell you this. In that

I can tell you this. In that 80's timeframe when the capital gains preferential treatment disappeared, rental unit supply dropped markedly as owners like me put their unit on the market, at lower prices, and they became owner occupied.

anonymous_coward
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@Economike: "Wait a minute.

@Economike: "Wait a minute. Currently, the government taxes nominal capital gains (that is, both real and inflated gains). If cap gains taxes applied only to real gains, why would that create an incentive for governent to inflate? The inflated portion of nominal gains would no longer be taxable. Where's the "unbridled" incentive?"

The captains of industry would have a way to reduce wages & debt in an unrestrained way (i.e. they don't pay any taxes on it). 1%ers typically have more of their wealth/income in assets, so their wealth is unaffected by inflation but they can reduce the cost of wages by inflating dollars.

This is of course assuming billionaires control the government, which you may or may not buy into.

anonymous_coward
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@Melvin: "Anyone who owns a

@Melvin: "Anyone who owns a piece of rental property likely has to deal with capital gains taxes like I did 25 years ago. And I was not a "one-percenter." I used the equity in my home to purchase a rental property."

Trump changed the law so you have to have lived in your house 5 of 7 (instead of 2 of 5) of the last years to get the cap gains reduction ($250k, $500k for married couples).

Don't know if that affects you or not... but in any event you only pay cap gains if you sell the property. You could extract cash tax free by refinancing your mortgage in order to buy your next rental property.

Edit: to be fair, it wasn't Trump, it was congress

JackStrawFromWichita
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"Trump changed the law so you

"Trump changed the law so you have to have lived in your house 5 of 7 (instead of 2 of 5) of the last years to get the cap gains reduction ($250k, $500k for married couples). "

No. That was a proposal but the final bill stuck with the 2/5 years.

anonymous_coward
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Oh wow I didn't realize that.

Oh wow I didn't realize that... thanks for the update.

Melvin Udall
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The capital gains I referred

The capital gains I referred to were on the sale of the rental property after I had deducted depreciation for the years I owned it. Known as "recapture."

If I was to sell the home I built 20 years ago, the capital gains would be nada.

Economike
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@Economike: "Wait a minute.

@Economike: "Wait a minute. Currently, the government taxes nominal capital gains (that is, both real and inflated gains). If cap gains taxes applied only to real gains, why would that create an incentive for governent to inflate? The inflated portion of nominal gains would no longer be taxable. Where's the "unbridled" incentive?"

@anonymous_coward: The captains of industry would have a way to reduce wages & debt in an unrestrained way (i.e. they don't pay any taxes on it).

This puzzles me. If capital gains are no longer indexed for inflation, how does that constitute "a way to reduce wages & debt in an unrestrained way (i.e. they don't pay any taxes on it.)?" Are you saying that taxing inflated capital gains is equivalent to propping up both wages and debt? How does that work? And, by the way, why is reducing debt an adverse result?

1%ers typically have more of their wealth/income in assets, so their wealth is unaffected by inflation but they can reduce the cost of wages by inflating dollars.

Huh? Did I just read "their wealth is unaffected by inflation?"

This is of course assuming billionaires control the government, which you may or may not buy into.

I'd say that Marxists and lunatics, and possibly others, might make such an assumption. One wonders, if billionaires control the government, what's stopping them from eliminating both capital gains and steeply progressive income taxes?

You seem to arguing something like this. (1) When only real capital gains are taxed (2) billionaires and captains-of-industry can order up inflation which will reduce real wages (and real corporate debt) to (3) increase the real value of capital because (4) inflation doesn't affect the value of capital, at least in proportion to wages. In sum, if inflated capital gains aren't subject to taxation, capital can implement inflation to steal income from labor. So a tax on imaginary gains - an accounting fiction that taxes a real loss - is all that stands between predatory bigshots and working families.

Here's a thought experiment. Imagine that capital gains aren't subject to taxation at all. Wouldn't that allow billionaires and captains-of-industry to reduce real wages, via inflation, to capture greater income share for themselves? (Hint: wages in Sweden.)

And here's a larger question: does the burden of capital taxation fall on capital or labor?

anonymous_coward
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@Melvin: "The capital gains I

@Melvin: "The capital gains I referred to were on the sale of the rental property after I had deducted depreciation for the years I owned it. Known as "recapture.""

Yes, well first of all, you got to write off that depreciation for however many years before you sold it, that is a huge tax break. If you invested that money you would come out way ahead when you eventually sold it - it's like a built-in tax shelter. (This is also a huge incentive not to sell, ever.)

What I was saying was, if you move into that house for 2 years before you sell it you can erase $250k off the capital gains straight away.

anonymous_coward
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@Economike:

@Economike:
"This puzzles me. If capital gains are no longer indexed for inflation, how does that constitute "a way to reduce wages & debt in an unrestrained way (i.e. they don't pay any taxes on it.)?" Are you saying that taxing inflated capital gains is equivalent to propping up both wages and debt? How does that work? And, by the way, why is reducing debt an adverse result?"

If you, a billionaire who controls the government, decide to start printing money, that automatically starts inflating asset values and reducing wages. If you have to pay taxes on those gains, the direct gain from your printing press is significantly less.

You would want to do this because reducing wages and (existing corporate) debt would fuel your real estate empire. This doesn't work if you're a debt-free cash heavy business (like Apple, for example).

"1%ers typically have more of their wealth/income in assets, so their wealth is unaffected by inflation but they can reduce the cost of wages by inflating dollars.

Huh? Did I just read "their wealth is unaffected by inflation?"

Yes, because their wealth primarily sits in assets and asset values are generally immune to inflation (modulo secondary effects, like a equity in a cash heavy business, or a change in business activity due to inflationary consumer fears).

You seem to arguing something like this. (1) When only real capital gains are taxed (2) billionaires and captains-of-industry can order up inflation which will reduce real wages (and real corporate debt) to (3) increase the real value of capital because (4) inflation doesn't affect the value of capital, at least in proportion to wages. In sum, if inflated capital gains aren't subject to taxation, capital can implement inflation to steal income from labor. So a tax on imaginary gains - an accounting fiction that taxes a real loss - is all that stands between predatory bigshots and working families.

Assets in particular (not capital in general), but yes.

Here's a thought experiment. Imagine that capital gains aren't subject to taxation at all. Wouldn't that allow billionaires and captains-of-industry to reduce real wages, via inflation, to capture greater income share for themselves? (Hint: wages in Sweden.)

Ok, I'll admit I am not following. Are you saying Sweden has no capital gains?

And here's a larger question: does the burden of capital taxation fall on capital or labor?
Yes, this probably is the ultimate question... I'll freely admit I only got part way through Piketty's book, so I don't know the historical answer to that question. I guess part of the answer to that question is, who is the beneficiary of capital taxation?

Economike
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Let's start here.

Let's start here.

Who is the beneficiary of capital taxation?

My intuitive answer: no one benefits from taxing capital.

Hint: Chamley-Judd Theorem.

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