Capital Gains Changes to Watch

[yclept]

www.bloomberg.com/news/2011-07-20/senate-debt-cutting-plan-yields-tax-cut-tax-increase-in-yardstick-shuffle.html

As I see it, if the "gang-of-six" plan passes and becomes effective this tax year, and if it includes changes in capital gains rates, it could have a negative influence on the stock market the last few months of this year.

If the rate for capital gains is going from 15% to 35%, I would think that all of the long-term holders would want to sell their positions before the tax rate hike to pay the lower tax on the accumulated gains. They might well buy the stocks back soon after and establish a new basis which would mitigate much of the selling effect, but overall I see it as a big increase in volatility. Assuming it happens this year and is for this Dec 31, I could see this negating (or at least overpowering) the normal seasonally favorable effect.
Of course there's nothing that says it has to run with the calendar. The government might pull a sneaky one (like they did with the SS reapplication procedure last December) and make it effective "as-of-today". They would have great incentive to do this as it would capture a lot more tax revenue than would allowing people to take profits under the old tax rate and later re-invest the money in the same or different stocks.
Just something to watch.

[ModE98]

Excellent "heads up"! Life is changing as we know it. You know how it will work out, the middle class gets squeezed again.

[danshirley]

the middle class gets squeezed again

Gee... poor middle class.

Just for a break from the moaning and groaning of people who have a lot more than they deserve:

www.covenanthouse.org/homeless-youth/view/alone_in_the_cold
www.covenanthouse.org/homeless-youth/view/no_place_to_sleep_but_a_cold_stairwell
www.covenanthouse.org/homeless-youth/view/a_gang_member_from_age_9_james_escaped
www.covenanthouse.org/homeless-youth/view/perry_dreams_of_a_brighter_future
www.covenanthouse.org/homeless-youth/view/from_college_to_homelessness
www.covenanthouse.org/homeless-youth/view/nothing_left_but_the_courage_to_try_again
www.covenanthouse.org/homeless-youth/view/overcoming_homelessness_through_healthcare

WAKE UP
Go out and find a homeless shelter or a children's cancer hospital and make yourself useful. You're some of the luckiest people in the history of the world.

[yclept]

Another thought is that people might want to hold onto losers until after the change so they can sell them and use the loss to offset what would otherwise be a bigger taxable gain.

[ModE98]

"You're some of the luckiest people in the history of the world"
Dan, perhaps... perhaps not. Do not think anyone can make that statement until one has walked in many moccasins on many a path. It is too broad a statement to apply to all. Yes, we are better off than the homeless, the starving in Africa, or the lower class in India or Bangladesh, sure will grant you that.

So, in general, if we able to afford a home/apartment, utilities, etc., and are surviving without having to live in doorways, the woods, or under bridges and having to beg for food, it is a "reasonable" statement.

I know a number of people just a step ahead of falling below the poverty line, so being lucky is relative to a given situation. Unless we think they are just lucky to exist above it.

[ModE98]

Yclept, excuse me for the last post, it is off-topic to the thread theme, but just had no other way to reply to Dan's post as I understood it. I can see his point (in general). Nowl, back to Capital Gains.

[danshirley]

Mod:
You need to read more history.

Here's some reading of current opinions on the matter:

www.huffingtonpost.com/andrew-z-cohen/the-luckiest-people-who-h_b_508931.html
www.dailymail.co.uk/debate/article-1257631/How-baby-boomers-bust-Britain-Self-indulgence-left-country-financially-socially-morally-crippled.html

and dare I quote him... even the Donald agrees with me:
www.forbes.com/2007/03/21/donald-trump-dream-oped-cx_lr_dream0307_0322trump.html

No offense but these are people so far more experienced and insightful than any of us, I would take their word for it... it's a very simple matter of fact... I could just picture you debating the donald on the issue.

Here's some additional reading from the history section of my bookshelf:

The History of the Medieval World
Ancient Civilizations
Ancient Greek Civilization
Ancient Rome: from the earliest times down to 476 A. D.
The History of the Decline and Fall of the Roman Empire
History Of Asia
China: A History
The Penguin History of Latin America
The History of the American Indians
Everyday Life in Early America
Modern European History
The Oxford Illustrated History of Modern Europe

Having read these I have never read of a civilization that had a higher quality of life than the Middle Class in the US enjoys today.

Not only that but the threat of nuclear war that made us shiver a few years ago seems very remote today.

IN addition to that.... I made the march on Washington:
upload.wikimedia.org/wikipedia/commons/thumb/e/e6/March_on_Washington_edit.jpg/220px-March_on_Washington_edit.jpg

at a time when it seemed that the nightmare of slavery would never be left behind... and today we have a black president whose color is not even a matter of discussion... regardless of whether you think he's any good at his job or not. (do you remember Bull Connor?)

How good can things get??

[yclept]

The gang of six plan looks to be abandoned for now. So this thread is superfluous, except as one more "head's up" on potential market drivers.

I think the root of unhappiness amongst plenty lies primarily in the recognition of how unfair our (the world's) system of wealth distribution is and has always been. I don't kid myself that goods were ever equitably distributed in history, nor even that it isn't better now than it was in most of the past. But neither do I kid myself that hard work and devotion to duty will be remunerated fairly. Many who have done nothing have much, and many who have done much have little. The downtrodden and those who aid them rail against the rich and the waste of the world's resources they embody. The working classes rail against them too, but also against the poor, defining them as societal leaches sucking off the taxes the middle class pays instead of "just getting a job". The rich just get fat (like Mama Cass) and bribe politicians to preserve the status quo.

Personally I don't see a return to philosophical or religious tenets as a solution. What, after all, does one do when awakened to the fact that their god is not only dead, but never existed. It's a pretty bitter herb to swallow if one has wasted much of one's life following certain precepts and if those teachings have not prepared the person for that awakening. While I do believe one must have open-mindedly investigated the values behind those practices before rejecting them, I also agree with Marx that they have been the opium of the masses. Simple-minded adherence to religious precepts is probably as deleterious to happiness as is simple-minded rejection of same. On balance I think religions (especially monotheistic) have harmed the world far more often than helped. Most wars have had religion combined with greed at their root. I can think of no war that religious tenets ever prevented. Both sides have generally believed that some god stood firmly on their side, an anachronism at best, though one that seems to be losing little sway as time moves on.

warprayer.org/

Counter argument to the above would have to give some credence to rapture of mystics over the centuries, or the usefulness of dissolution of self in effective meditation. These would be appreciable examples of happiness unrelated to material goods that have been most developed in religious practice and thought.

A quick walk around any 19th century graveyard observing child deaths, average age of adult deaths, deaths of entire families within a short period of time, etc. should certainly awaken one to the fact that many things have improved over the last hundred years or so. On the other hand, conditions in many 3rd world countries (or even parts of this country) could convince a person that nothing has changed.

This sort of brings me back to my original statement to the effect that inequity and recognition of same is the cause of most unhappiness. Why it damn near makes me want to start a war! But then, we tried that in the 1860s and it didn't work out so well. All we got was a change of government (or power distribution within the branches of government) that a bit over a century later allowed the likes of G.W. Bush to wreak havoc on the world and on this country's economic well-being.

[ModE98]

We mortals are just pawns in the chess game of life. Some are born into wealth, others into poverty, Experiences vary for everyone. We cannot deny history and nobody really knows what lies ahead. Just have to go with the flow and roll with the punches that may be thrown our way.

[ModE98]

WXYZ, just happen to be from the 20's. 30's (ugh!), 40's. 50's. 60's and 70's. For some reason, I feel life and living was BETTER then. Things were simpler, more modest, and yes, seems it was easier then. We did not expect the "goodies" everyone seems to want today (i.e. smartphones, kindles, or whatever).
Have to admit, medical advancements are far superior and a boon to current living. I would not be around were it not for the advancements in heart surgery... quad bypass.
That is how I view it. Everyone has their own "slant" on life. I am not "knocking" life today, there are so many advancements for which to be appreciative. But also it can get complicated keeping up. You will find that out when you reach the mid-80's, things continue to advance and start to leave you behind. We all have "our era" and were more comfortable in it.

[2kids10horses]

Last night, Obama said things like "A Hedge fund's manager's secretary pays more in taxes than the manager", or something like that.

Of course, he's playing to the ignorant. What he is really saying is those that make their living on capital gains are paying a lower tax rate than those on salary or wages.

So, it's code for saying he wants to raise the capital gains tax.

When is someone going to make him take Econ 101? Harvard obviously didn't. He should spend a couple of hours reading Samuelson's "Economics".

If he takes away the incentives to invest in this country, those with capital will take it elsewhere.

I think he also doesn't understand that if he raised the cap gains tax, he's not going to see the amount of taxes he thinks he will. Some, like ylept, will sell before the new rate takes effect. So, while there might be a short term spike, it's not sustaining. Others, might hold on to their holdings and wait for another administration to repeal the increase or eliminate the cap gains tax altogether.

I maintain that if the cap gains tax were eliminated, it would "free up" huge pools of money that would be spent on new stuff and really spur the economy. For example, I have a huge long term gain on some MSFT shares I bought early 1990's. If I sell, it's all almost all profit, and subject to capital gains tax. But,I might sell some if there were no tax, and use some money to buy a big plasma TV. Then, the economy would get a lift, some employees of several companies would get paid, and they'll pay their taxes because I bought a new TV. But, since I don't want to pay cap gains tax, I'll hold my MSFT, so no new TV for me. No sale for the Best Buy guys, no revenue for the trucker to take it from the manufacturer to the store, no sale for the manufacturer, the suppliers, etc.

I would bet I'm not alone in my way of thinking.

I have a daugher entering college. I had set aside funds for college for her, stocks like MSFT, INTC, HD, MCD, KO, GE, etc back when she was born. It was to be her college fund. (It still is.) So, I might have to sell some holdings now (or sooner than I had planned) if they're going to change the rate.

[ModE98]

2&10.........

[yclept]

"I maintain that if the cap gains tax were eliminated, it would "free up" huge pools of money that would be spent on new stuff and really spur the economy."

If the Reagan administration didn't prove the error of "trickle-down" economics, I guess nothing ever will. The GW Bush tax rate reductions were designed solely to transfer more wealth (at the expense of the people as represented by the government coffers) to the ultra-rich, and at that succeeded beyond their advocates wildest dreams. The ultra rich provide more money to accountants to avoid taxes and to politicians to maintain the status quo than ever they contribute to job-creating ventures. True they do spend some money to maintain their lavish lifestyle, but the number of them who actually put money at risk in creating new businesses is minuscule. They make money the "old fashioned way", they steal it.

[2kids10horses]

Well, I don't know any uber-rich, so I don't know if they stole their wealth or not. I do know some of the heirs of Asa Candler (Coca-cola), and they're pretty rich (but not uber rich), and I don't think they stole theirs.

I don't know them personally, but I don't think Bill Gates or Warren Buffett stole theirs.

I will say that my father was an investor, and he used to hate taking profits on his long term holdings because of the tax. I believe this may have had the effect that he held on to some stocks for longer than he should have.

[yclept]

Gates stole CP/M operating system from Gary Kildall.

Buffet got lucky trading early on.

Inheritance is just passing the wealth of one generation to the next with no merit or work required of the heir. In the first generation, it may have been earned or stolen, but in every generation after that it is misappropriation of the world's goods to people who have done nothing to earn it -- I can't think of a better definition of theft.

What business would your father have started that employed other people if he had not had his money in the market? In the beginning, most start-up entrepreneurs are driven by the love of the business concept or product and care little about the financial ramifications. They certainly don't have money tied up in unrelated investments that could be put to work in the company -- in fact, they usually end up having to take venture capital against shares of ownership that ultimately loses them a good deal of the eventual value of the company.

[2kids10horses]

I think Bill Gates had a COBOL compiler he wanted IBM to buy. (It might not have been COBOL, but it doesn't matter.) And IBM asked him to write a compiler. I do believe he started with CP/M and if that belonged to someone else, they should have sued him. Windows was a copy of an idea that Apple created for the Lisa machine. Often, the inventors of something are not the ones who can best market their inventions.

My father ran a small "family" home repair/improvement business. He probably had 12 employees at any given time. His workers were about his same age, and worked for him their entire working careers. THey all retired at about the same time.

It was his knowledge of the construction industry that caused him to see the value of the HomeDepot IPO. He bought some. (Not enough!) Anyway, he held on for 20 years or so. He didn't sell the HD to expand his business because he wanted to retire.

Looking back, he missed a huge opportunity... with his skilled crew, he could have purchased some homes in the MidTown area of Atlanta and fixed them up, and resell them. But he was a child of the Depression, and didn't like to put his capital at risk. So, he didn't.

Around where I live now, there's a guy about the wealthiest around who made his money moonshining years ago. Again, while it may not have been legal, he didn't steal it!