Total Posts:17|Showing Posts:1-17
Jump to topic:

Taxation of Captial Gains, Interest, Dividend

Khaos_Mage
Posts: 23,214
Add as Friend
Challenge to a Debate
Send a Message
3/10/2013 4:46:28 PM
Posted: 3 years ago
Currently, interest is taxed as normal income, capital gains have their own rates, and I'm not sure how dividends are taxed anymore, due to recent changes (I believe there were qualified dividends, which were either not taxed or taxed at capital gains rates, while non-qualified dividends was taxed at normal rates). I posit that all three of these items should be taxed equally.

I have never heard an argument for capital gains tax breaks that shouldn't apply to interest and/or dividends. Obviously, if you think that there ought not be any tax break for capital gains, then you likely would agree with me that all of these items should be treated equally.

Capital gains are double taxed, as it requires post-tax income to purchase said asset, same goes for money in the bank which generates interest. Often it is suggested (re: stocks) that capital assets allow businesses to grow, therefore they deserve special treatment.

However, does not a bank lending out money have the same effect? Therefore, the interest paid out on the reserves ought to be afforded the same treatment. Do bonds issued by businesses not also aid the company directly?

Dividends also aid businesses by keeping the stock's demand high, for future stock sales. Plus, they are double taxed, both in the sense that post-tax dollars were used to buy the stock, and also in the sense that post-tax dollars are used to pay out the dividend from the corporation (dividends are not a deductable expense).

What do you think?
My work here is, finally, done.
twocupcakes
Posts: 2,750
Add as Friend
Challenge to a Debate
Send a Message
3/10/2013 7:24:36 PM
Posted: 3 years ago
At 3/10/2013 4:46:28 PM, Khaos_Mage wrote:
Currently, interest is taxed as normal income, capital gains have their own rates, and I'm not sure how dividends are taxed anymore, due to recent changes (I believe there were qualified dividends, which were either not taxed or taxed at capital gains rates, while non-qualified dividends was taxed at normal rates). I posit that all three of these items should be taxed equally.

I have never heard an argument for capital gains tax breaks that shouldn't apply to interest and/or dividends. Obviously, if you think that there ought not be any tax break for capital gains, then you likely would agree with me that all of these items should be treated equally.

Capital gains are double taxed, as it requires post-tax income to purchase said asset, same goes for money in the bank which generates interest. Often it is suggested (re: stocks) that capital assets allow businesses to grow, therefore they deserve special treatment.

However, does not a bank lending out money have the same effect? Therefore, the interest paid out on the reserves ought to be afforded the same treatment. Do bonds issued by businesses not also aid the company directly?

Dividends also aid businesses by keeping the stock's demand high, for future stock sales. Plus, they are double taxed, both in the sense that post-tax dollars were used to buy the stock, and also in the sense that post-tax dollars are used to pay out the dividend from the corporation (dividends are not a deductable expense).

What do you think?

I think it makes sense to tax capital gains less than dividends. This encourages the company to retain cash to invest and grow rather than give it out as a dividend.
twocupcakes
Posts: 2,750
Add as Friend
Challenge to a Debate
Send a Message
3/10/2013 7:35:36 PM
Posted: 3 years ago

However, does not a bank lending out money have the same effect? Therefore, the interest paid out on the reserves ought to be afforded the same treatment. Do bonds issued by businesses not also aid the company directly?

It is almost the same but not exactly. Debt and equity financing are not exactly the same. If a company takes on too much debt than its credit risk will increase which will eventually cause interest expense to increase greatly. Most firms issue stock to finance their company, so it makes sense to have a lower capital gains tax.
Khaos_Mage
Posts: 23,214
Add as Friend
Challenge to a Debate
Send a Message
3/11/2013 1:28:25 AM
Posted: 3 years ago
At 3/10/2013 7:35:36 PM, twocupcakes wrote:

However, does not a bank lending out money have the same effect? Therefore, the interest paid out on the reserves ought to be afforded the same treatment. Do bonds issued by businesses not also aid the company directly?

It is almost the same but not exactly. Debt and equity financing are not exactly the same. If a company takes on too much debt than its credit risk will increase which will eventually cause interest expense to increase greatly. Most firms issue stock to finance their company, so it makes sense to have a lower capital gains tax.

In the regard of "helping a company thrive", there is no meaningful distinction between the two, except the effect of future earnings.

Equity financing will dilute the shares, which will hurt earnings per share ($1 million over 10,000 shares > $1 million over 20,000 shares), which may cause the shares to go down (loss of demand) in the future. This is also assuming that new shares are sold at current value and not stock price. (i.e. retained earnings/all stock vs. current market price)

Debt financing may hurt one's credit, which may hurt earnings until it's paid off, but it will retain current dilution of shares. Also, to my knowledge, this is taxed as interest to the bondholder, even though the financing directly benefits the company.
My work here is, finally, done.
Khaos_Mage
Posts: 23,214
Add as Friend
Challenge to a Debate
Send a Message
3/11/2013 1:35:14 AM
Posted: 3 years ago
At 3/10/2013 7:24:36 PM, twocupcakes wrote:
At 3/10/2013 4:46:28 PM, Khaos_Mage wrote:

I think it makes sense to tax capital gains less than dividends. This encourages the company to retain cash to invest and grow rather than give it out as a dividend.

Tell me, how does a bottle of wine kept as an investment help a company grow? The orginal artwork on the wall?

Also, if a company never pays a dividend, what good is the stock as an investment? The only way a stockholder makes money is dividends or a payout due to a company's liquidation (i.e. the shareholder will get his share of the company).

From the irs:
Capital Assets

Almost everything you own and use for personal purposes, pleasure, or investment is a capital asset. For exceptions, see Noncapital Assets, later.

The following items are examples of capital assets.
"Stocks and bonds.
"A home owned and occupied by you and your family.
"Timber grown on your home property or investment property, even if you make casual sales of the timber.
"Household furnishings.
"A car used for pleasure or commuting.
"Coin or stamp collections.
"Gems and jewelry.
"Gold, silver, and other metals.


http://www.irs.gov...
My work here is, finally, done.
Khaos_Mage
Posts: 23,214
Add as Friend
Challenge to a Debate
Send a Message
3/11/2013 1:45:43 AM
Posted: 3 years ago
One more thing, Twocupcakes...

If I had $1 million in the bank, of which they pay me 2% interest for keeping it there. Now, since they are paying me to keep the money in the bank, they can lend it out. So, assume they use my money to lend as a small business loan, as upstart capital. How is this any different in helping a business thrive (i.e. equity financing)?

Furthermore, let's say the money is instead given to 50 different people to buy cars. Now, 50 people can go buy cars that otherwise wouldn't be able to. This helps dealerships and auto manufacturers.

So, how does interest not help businesses?
My work here is, finally, done.
malcolmxy
Posts: 2,855
Add as Friend
Challenge to a Debate
Send a Message
3/11/2013 1:48:55 AM
Posted: 3 years ago
Capital gains, dividends and interest should be taxed the same up to a certain point.

After that, interest should be taxed at a much higher rate.

Why?

Because past a certain point ($100,000 in annual interest income? It depends on a couple factors), earning interest income involves almost no risk and certainly almost no effort.

It is simply the relative stability of our government and economy which allows this extra interest income to be earned. Because the service the government offers (stability) is the impetus behind the income being able to be earned, the government should charge extra for their services where that income is concerned.

I'm actually of the opinion that capital gains tax is the only tax that business owners should pay. My reasoning behind this is that the tax rates can be adjusted for incentivizing growth in certain sectors much more easily and efficiently, whereas income tax for businesses is regressive and doesn't lend itself to productive tax policy.
War is over, if you want it.

Meet Dr. Stupid and his assistants - http://www.debate.org...
Khaos_Mage
Posts: 23,214
Add as Friend
Challenge to a Debate
Send a Message
3/11/2013 2:09:06 AM
Posted: 3 years ago
At 3/11/2013 1:48:55 AM, malcolmxy wrote:
Capital gains, dividends and interest should be taxed the same up to a certain point.

After that, interest should be taxed at a much higher rate.
Why not have all three be taxed at the higher rate, once the threshold is met.

Why?

Because past a certain point ($100,000 in annual interest income? It depends on a couple factors), earning interest income involves almost no risk and certainly almost no effort.

Same could be said about any of them. How much risk or effort does it take to have a stamp collection, gold buried in the back yard, or an original artwork? To acheive that much interest, you do run the risk of a bank run, unless you have addition insurance (FDIC doesn't cover that much).

The only difference is the permanent selling of an asset vs. the temporary use by another of an asset (banks using your money).
Hmmmm... An interesting distinction that merits more thought...

It is simply the relative stability of our government and economy which allows this extra interest income to be earned. Because the service the government offers (stability) is the impetus behind the income being able to be earned, the government should charge extra for their services where that income is concerned.
Don't all three reap benefits from this? If banks were unable to loan out money, they wouldn't offer interest, after all. Capital assets are "safe" thanks to police, military, and welfare all working to keep theives away.

I'm actually of the opinion that capital gains tax is the only tax that business owners should pay. My reasoning behind this is that the tax rates can be adjusted for incentivizing growth in certain sectors much more easily and efficiently, whereas income tax for businesses is regressive and doesn't lend itself to productive tax policy.

Perhaps, but capital gains taxes are not only paid by business owners. Hell, I bet kids selling Yu-Gi-Oh cards might be technically subject to this tax.

To be clear on your last point, you are saying there should be no tax on dividends? Why?
My work here is, finally, done.
malcolmxy
Posts: 2,855
Add as Friend
Challenge to a Debate
Send a Message
3/11/2013 2:33:40 AM
Posted: 3 years ago
At 3/11/2013 2:09:06 AM, Khaos_Mage wrote:
At 3/11/2013 1:48:55 AM, malcolmxy wrote:
Capital gains, dividends and interest should be taxed the same up to a certain point.

After that, interest should be taxed at a much higher rate.
Why not have all three be taxed at the higher rate, once the threshold is met.

Why?

Because past a certain point ($100,000 in annual interest income? It depends on a couple factors), earning interest income involves almost no risk and certainly almost no effort.

Same could be said about any of them. How much risk or effort does it take to have a stamp collection, gold buried in the back yard, or an original artwork? To acheive that much interest, you do run the risk of a bank run, unless you have addition insurance (FDIC doesn't cover that much).

A. Capital Gains aren't taxed until the gain is realized as income. You gotta go out and sell the stamps before you get taxed on them. Holding them brings about an opportunity cost - you're losing the ability to use the proceeds from a sale to build wealth in other ways. That's the biggest difference.

B. If you're making over $100K in interest income per annul, it ain't being earned in some savings account you have linked to your checking account. These people operate on a different level than you and I do (plus, the FDIC insures $X PER ACCOUNT, so as long as you spread your immediate liquidity over multiple accounts at multiple banks under multiple names/entities...like you, your trust, your spouse, your spouse's trust, and however many shell companies you use for this sort of thing, the FDIC covers you just fine)

The only difference is the permanent selling of an asset vs. the temporary use by another of an asset (banks using your money).
Hmmmm... An interesting distinction that merits more thought...

Again, you're thinking in terms of you here, not Johnny MegaBucks and his team of accountants who shuttle his money all over the world to avoid X tax, Y fine or whatever other expense might equate to this @sshole giving back to the society that made him rich.

It is simply the relative stability of our government and economy which allows this extra interest income to be earned. Because the service the government offers (stability) is the impetus behind the income being able to be earned, the government should charge extra for their services where that income is concerned.
Don't all three reap benefits from this? If banks were unable to loan out money, they wouldn't offer interest, after all. Capital assets are "safe" thanks to police, military, and welfare all working to keep theives away.

I'm actually of the opinion that capital gains tax is the only tax that business owners should pay. My reasoning behind this is that the tax rates can be adjusted for incentivizing growth in certain sectors much more easily and efficiently, whereas income tax for businesses is regressive and doesn't lend itself to productive tax policy.

Perhaps, but capital gains taxes are not only paid by business owners. Hell, I bet kids selling Yu-Gi-Oh cards might be technically subject to this tax.

Trust me on this one...not since the advent of the internet...

To be clear on your last point, you are saying there should be no tax on dividends? Why?

No...I left dividends out because they're usually pretty nominal these days. Most money is made on the stock market via capital gains. There are very few investors who keep an investment in a stock simply because of the generous dividend returned by that corporation.

It's strange, because this is how investors are supposed to be compensated by corporations, but outside of preferred stock, dividends are a dying income source.

Frankly, I've not given them enough thought to decide what to do with them. They seem more inconsequential than anything else...lump them in with interest or something, and include them in whatever normal tax limit which is set on interest income...or not...like I said, I've not given them much thought.
War is over, if you want it.

Meet Dr. Stupid and his assistants - http://www.debate.org...
twocupcakes
Posts: 2,750
Add as Friend
Challenge to a Debate
Send a Message
3/11/2013 10:21:39 AM
Posted: 3 years ago
At 3/11/2013 1:28:25 AM, Khaos_Mage wrote:
At 3/10/2013 7:35:36 PM, twocupcakes wrote:

However, does not a bank lending out money have the same effect? Therefore, the interest paid out on the reserves ought to be afforded the same treatment. Do bonds issued by businesses not also aid the company directly?

It is almost the same but not exactly. Debt and equity financing are not exactly the same. If a company takes on too much debt than its credit risk will increase which will eventually cause interest expense to increase greatly. Most firms issue stock to finance their company, so it makes sense to have a lower capital gains tax.

In the regard of "helping a company thrive", there is no meaningful distinction between the two, except the effect of future earnings.

Equity financing will dilute the shares, which will hurt earnings per share ($1 million over 10,000 shares > $1 million over 20,000 shares), which may cause the shares to go down (loss of demand) in the future. This is also assuming that new shares are sold at current value and not stock price. (i.e. retained earnings/all stock vs. current market price)

Debt financing may hurt one's credit, which may hurt earnings until it's paid off, but it will retain current dilution of shares. Also, to my knowledge, this is taxed as interest to the bondholder, even though the financing directly benefits the company.

Studies show that increasing debt increases the value of a firm, up until a certain point, where it destroys value of a firm. This is why firms also finance through equity. So, most companies use stocks to help finance their company.

A lower capital gains favors growth companies (ones that invest back into the business) as opposed to mature companies that give all their cash as dividends.
twocupcakes
Posts: 2,750
Add as Friend
Challenge to a Debate
Send a Message
3/11/2013 10:26:12 AM
Posted: 3 years ago

Tell me, how does a bottle of wine kept as an investment help a company grow? The orginal artwork on the wall?

A lower capital gains would be an incentive for companies to either sell the assets to invest in a project or use the assets to get a lower interest loan to invest in a project.

Also, if a company never pays a dividend, what good is the stock as an investment? The only way a stockholder makes money is dividends or a payout due to a company's liquidation (i.e. the shareholder will get his share of the company).

If a company never pays a dividend (Like Apple) people invest because they hope the company does well and they can sell their stock for a capital gain.

From the irs:
Capital Assets

Almost everything you own and use for personal purposes, pleasure, or investment is a capital asset. For exceptions, see Noncapital Assets, later.

The following items are examples of capital assets.
"Stocks and bonds.
"A home owned and occupied by you and your family.
"Timber grown on your home property or investment property, even if you make casual sales of the timber.
"Household furnishings.
"A car used for pleasure or commuting.
"Coin or stamp collections.
"Gems and jewelry.
"Gold, silver, and other metals.


http://www.irs.gov...
twocupcakes
Posts: 2,750
Add as Friend
Challenge to a Debate
Send a Message
3/11/2013 10:34:38 AM
Posted: 3 years ago
At 3/11/2013 1:45:43 AM, Khaos_Mage wrote:
One more thing, Twocupcakes...

If I had $1 million in the bank, of which they pay me 2% interest for keeping it there. Now, since they are paying me to keep the money in the bank, they can lend it out. So, assume they use my money to lend as a small business loan, as upstart capital. How is this any different in helping a business thrive (i.e. equity financing)?

Furthermore, let's say the money is instead given to 50 different people to buy cars. Now, 50 people can go buy cars that otherwise wouldn't be able to. This helps dealerships and auto manufacturers.

So, how does interest not help businesses?

I never mentioned anything about interest income, I just said it makes sense for dividends tax to be more than capital gains. A lower capital gains benefits growth companies that invest.

I think that low income people should be have a lower interest tax rate and rich people should have a higher interest tax rate.
Khaos_Mage
Posts: 23,214
Add as Friend
Challenge to a Debate
Send a Message
3/12/2013 4:43:25 AM
Posted: 3 years ago
At 3/11/2013 10:26:12 AM, twocupcakes wrote:

Tell me, how does a bottle of wine kept as an investment help a company grow? The orginal artwork on the wall?

A lower capital gains would be an incentive for companies to either sell the assets to invest in a project or use the assets to get a lower interest loan to invest in a project.

I don't understand your response.
How does my old-school Nintendo, which I bought for $50, help any business grow if I were to sell it for $80 (a capital gain of $30)? If Nintendo had produced more of them, it might not re-sell for this much now.

Also, if a company never pays a dividend, what good is the stock as an investment? The only way a stockholder makes money is dividends or a payout due to a company's liquidation (i.e. the shareholder will get his share of the company).

If a company never pays a dividend (Like Apple) people invest because they hope the company does well and they can sell their stock for a capital gain.
1. Apple did not issue a cash dividend for some 19 years, but it has offered three in the last year or so, each at $2.35/share (compared to $0.18/share before).
2. If a company does not offer a dividend, and the company is thriving (i.e. is unlikely to be bought out or fail), why would I want to buy the stock from you? To hold on to as an asset, which should be insulated from inflation. Fair enough. However, how does my buying the stock from you benefit the business at all? They already have the money from the IPO, which helped them.

So, how do capital gains benefit companies, when the only time there is a direct benefit is when the company first issues it (or resells treasury stock)? It would appear that interest bearing accounts would help more in helping businesses thrive than capital gains, except for the initial capital investment. So, why is the more likely useless one given a preferential tax rate?
My work here is, finally, done.
Khaos_Mage
Posts: 23,214
Add as Friend
Challenge to a Debate
Send a Message
3/12/2013 4:50:07 AM
Posted: 3 years ago
At 3/11/2013 10:34:38 AM, twocupcakes wrote:
At 3/11/2013 1:45:43 AM, Khaos_Mage wrote:
One more thing, Twocupcakes...

If I had $1 million in the bank, of which they pay me 2% interest for keeping it there. Now, since they are paying me to keep the money in the bank, they can lend it out. So, assume they use my money to lend as a small business loan, as upstart capital. How is this any different in helping a business thrive (i.e. equity financing)?

Furthermore, let's say the money is instead given to 50 different people to buy cars. Now, 50 people can go buy cars that otherwise wouldn't be able to. This helps dealerships and auto manufacturers.

So, how does interest not help businesses?

I never mentioned anything about interest income, I just said it makes sense for dividends tax to be more than capital gains. A lower capital gains benefits growth companies that invest.
Only on the IPO. How many times is a particular share traded? Dozens? Hundreds? Thousands? Only the very first trade benefits the company.


I think that low income people should be have a lower interest tax rate and rich people should have a higher interest tax rate.

Currently, they do. In fact, the poor pay lower income (interest) and capital gains taxes than the rich do.
My work here is, finally, done.
Khaos_Mage
Posts: 23,214
Add as Friend
Challenge to a Debate
Send a Message
3/12/2013 5:06:00 AM
Posted: 3 years ago
At 3/11/2013 2:33:40 AM, malcolmxy wrote:
At 3/11/2013 2:09:06 AM, Khaos_Mage wrote:
At 3/11/2013 1:48:55 AM, malcolmxy wrote:
Capital gains, dividends and interest should be taxed the same up to a certain point.

After that, interest should be taxed at a much higher rate.
Why not have all three be taxed at the higher rate, once the threshold is met.

Why?

Because past a certain point ($100,000 in annual interest income? It depends on a couple factors), earning interest income involves almost no risk and certainly almost no effort.

Same could be said about any of them. How much risk or effort does it take to have a stamp collection, gold buried in the back yard, or an original artwork? To acheive that much interest, you do run the risk of a bank run, unless you have addition insurance (FDIC doesn't cover that much).

A. Capital Gains aren't taxed until the gain is realized as income. You gotta go out and sell the stamps before you get taxed on them. Holding them brings about an opportunity cost - you're losing the ability to use the proceeds from a sale to build wealth in other ways. That's the biggest difference.

You also don't get interest if you use the money. CDs are penalized for early withdrawl. The opportunity cost is present in both cases.

B. If you're making over $100K in interest income per annul, it ain't being earned in some savings account you have linked to your checking account. These people operate on a different level than you and I do (plus, the FDIC insures $X PER ACCOUNT, so as long as you spread your immediate liquidity over multiple accounts at multiple banks under multiple names/entities...like you, your trust, your spouse, your spouse's trust, and however many shell companies you use for this sort of thing, the FDIC covers you just fine)
Which takes more effort than simply finding someone online to buy a stamp I have.

The only difference is the permanent selling of an asset vs. the temporary use by another of an asset (banks using your money).
Hmmmm... An interesting distinction that merits more thought...

Again, you're thinking in terms of you here, not Johnny MegaBucks and his team of accountants who shuttle his money all over the world to avoid X tax, Y fine or whatever other expense might equate to this @sshole giving back to the society that made him rich.
The rich hiding their assets doesn't change my opinion of what I think the law ought to be. Enforcement is another issue, which the rich seem to have many allies.

It is simply the relative stability of our government and economy which allows this extra interest income to be earned. Because the service the government offers (stability) is the impetus behind the income being able to be earned, the government should charge extra for their services where that income is concerned.
Don't all three reap benefits from this? If banks were unable to loan out money, they wouldn't offer interest, after all. Capital assets are "safe" thanks to police, military, and welfare all working to keep theives away.

I'm actually of the opinion that capital gains tax is the only tax that business owners should pay. My reasoning behind this is that the tax rates can be adjusted for incentivizing growth in certain sectors much more easily and efficiently, whereas income tax for businesses is regressive and doesn't lend itself to productive tax policy.

Perhaps, but capital gains taxes are not only paid by business owners. Hell, I bet kids selling Yu-Gi-Oh cards might be technically subject to this tax.

Trust me on this one...not since the advent of the internet...
I don't understand what you are saying here.
You didn't seem to address the fact that many capital gains are not business related. The sale of a home or a stamp collection are likely not business transactions and are likely to be a capital gain. In my Yu-Gi-Oh example, buying a pack of cards for $4 and holding them for a year and selling one of the cards for $15 is a capital gain, which is much easier due to the internet (if that is what your point was), but happened before its advent.

Also, a dividend would be the only true tax a business owner pays (as a shareholder). If I buy stock from you and sell it to another for $20 gain, it didn't affect the business one bit, so I don't see how the business owner is paying the tax, when the only reason I pay the captial gains tax is because I am no longer the owner.

To be clear on your last point, you are saying there should be no tax on dividends? Why?

No...I left dividends out because they're usually pretty nominal these days. Most money is made on the stock market via capital gains. There are very few investors who keep an investment in a stock simply because of the generous dividend returned by that corporation.

It's strange, because this is how investors are supposed to be compensated by corporations, but outside of preferred stock, dividends are a dying income source.


Frankly, I've not given them enough thought to decide what to do with them. They seem more inconsequential than anything else...lump them in with interest or something, and include them in whatever normal tax limit which is set on interest income...or not...like I said, I've not given them much thought.
My work here is, finally, done.
malcolmxy
Posts: 2,855
Add as Friend
Challenge to a Debate
Send a Message
3/12/2013 6:04:58 AM
Posted: 3 years ago
At 3/12/2013 5:06:00 AM, Khaos_Mage wrote:

You also don't get interest if you use the money. CDs are penalized for early withdrawl. The opportunity cost is present in both cases.

Other than a savings account, which has no real opportunity cost associated with it because of the ridiculously low rate of return (if you had the FDIC insured max in that account, would net you all of about $1000 for the year) interest bearing assets have a schedule. There's no opportunity cost that needs to be accounted for, because it was accounted for (or known, anyway) when the investment began.

With Capital Gains, you don't have to sell your set of stamps at a certain time. You can continue to hold onto them until you die, if you so desire. That opportunity cost is variable based on when you decide, or don't decide, to sell it. That's the opportunity cost that matters.

(I hope that made sense)

Which takes more effort than simply finding someone online to buy a stamp I have.

Not really...all these @ssholes have trusts (which should be eliminated for all but minor children who need them to protect their assets from thieving adults). It's pretty easy, and wildly lucrative (because they're generally tax free).

I don't understand what you are saying here.

I'm saying that making tax-free income on the internet is not that terribly challenging.

You didn't seem to address the fact that many capital gains are not business related. The sale of a home or a stamp collection are likely not business transactions and are likely to be a capital gain. In my Yu-Gi-Oh example, buying a pack of cards for $4 and holding them for a year and selling one of the cards for $15 is a capital gain, which is much easier due to the internet (if that is what your point was), but happened before its advent.

And, this would be income that the IRS never needs to know about...also, you're allowed, even if you want to follow a law which you needn't follow, a certain amount of "hobby" capital gains per year at 0% tax rate.

If you go over that amount...well, it all depends on how you do it, or if "you" do it (your name, etc...I'm not stupid enough to be one of the 16th Amendment deniers, but I do know that the government is doing a lot of illegal sh!t right now...my state has sales tax, so I pay that, but I don't pay federal taxes if I can avoid them, and I can avoid them...)

Also, a dividend would be the only true tax a business owner pays (as a shareholder). If I buy stock from you and sell it to another for $20 gain, it didn't affect the business one bit, so I don't see how the business owner is paying the tax, when the only reason I pay the captial gains tax is because I am no longer the owner.

They're not. You are. You are the one who made a gain on the capital, because you owned that piece of the company that you sold at a profit.
War is over, if you want it.

Meet Dr. Stupid and his assistants - http://www.debate.org...
twocupcakes
Posts: 2,750
Add as Friend
Challenge to a Debate
Send a Message
3/12/2013 9:23:20 AM
Posted: 3 years ago

I don't understand your response.
How does my old-school Nintendo, which I bought for $50, help any business grow if I were to sell it for $80 (a capital gain of $30)? If Nintendo had produced more of them, it might not re-sell for this much now.

It has to do with the decision of a company to retain cash to invest or issue a dividend. If a company retains cash instead of paying it as a dividend, and a investor sells the stock for a gain, the investors pays less tax (if CG tax was lower) than if the company pays a dividend.

1. Apple did not issue a cash dividend for some 19 years, but it has offered three in the last year or so, each at $2.35/share (compared to $0.18/share before).

Okay, Apple is priced at around $435. Do you think people pay that much because of the $2.35 dividend? No, they buy apple because they believe the share will go up in price.

Berkshire Hathaway (Warren Buffet's 'Company), Google and Amazon do not issue dividends. People by stock because they think the price of the stock will go up and they can sell it fr a capital gain.

2. If a company does not offer a dividend, and the company is thriving (i.e. is unlikely to be bought out or fail), why would I want to buy the stock from you? To hold on to as an asset, which should be insulated from inflation. Fair enough. However, how does my buying the stock from you benefit the business at all? They already have the money from the IPO, which helped them.

You would buy the stock in hopes it goes up in price and you can sell it for a capital gain.

So, how do capital gains benefit companies, when the only time there is a direct benefit is when the company first issues it (or resells treasury stock)?

It has to do with the decision of a company to retain cash to invest or issue a dividend. A lower CG encourages investment.

It would appear that interest bearing accounts would help more in helping businesses thrive than capital gains, except for the initial capital investment. So, why is the more likely useless one given a preferential tax rate?