Rich people and taxes

[jeff]

Originally Posted by Inquartata

It's still ownership; it's just too diffused in most cases to retain any real power. Management has cornered the market on that, even in many cases in companies that are still privately held or family businesses.

But practically speaking you are right.

Holy Cow! Inq said I was right! I better lay down and let the blood rush back to my head!

Originally Posted by Inquartata

My argument is closer to "I, who provide investment capital in order to receive a return, have that same return attenuated not once but twice by the government, which did nothing to earn either slice".

Ah, but the cost of your investment already factored in the tax obligation that would ensue, - the miracle of the marketplace guaranteed the optimal price for the share price (if those obligations were not a consideration, the shares would have had a higher price to reflect the higher yield; you got to enjoy the lower price due to the anticipated yield-affecting cost). The market has already implicitly priced all the factors of risk, reward and costs - so what's your complaint, huh?

Note 1: just like with corporate and tax free muni bonds
Note 2: what this adds up to is that a change to the tax law to get rid of taxing of dividends and capital gains altogether would be a one-time gift to the current shareholders (the rich, surprise!) who would have bought the shares at prices depressed by expectation of a future tax obligation that no longer would exist
Note 3: Wall Street wants it, because it would increase order flow, which is all they really want
Note 4: AAPL doesn't pay dividends, so what's your problem?

Originally Posted by Inquartata

"Nefarious", indeed! It's a descriptive scientific term. Trying to twist it's meaning to support your own belief, now THAT'S nefarious!

As if they aren't twisting words with a perfectly well understood meaning for their purpose (which might not be more than "buy more of my textbooks")

This is where I say "Tee hee!" or words to that effect, right

Originally Posted by Inquartata

Interesting, yes.

Of course, that someone once made a Devil's bargain does not make their victims any les victims.

Well, it might mean that they were willing to cut a deal - and considering how the market has progressed in the last 60 years, one could say they got the better of it.

Originally Posted by Inquartata

It doesn't. Neither does the house need to grab two separate percentages from the same pot.

Then just add the two together, and look back at the two previous stanzas above to consider why you already got the price advantage that the tax paid for...

Originally Posted by Inquartata

It is a tax on the revenue you expect as a return on your risk capital. It is very much a tax to you; someone else is merely shelling it out in your stead. No different from the thief who first steals your car and then steals the insurance settlement you get for the loss.

Ibid, (not the right phrase, but what the heck...)

Originally Posted by Inquartata

It's why W.C. Fields didn't drink water.

Gotta go.

And the alcohol kills the germs, or at least makes you care less about 'em!

cheers, Jeff

[jBirch]

Originally Posted by jeff

Ah, but the cost of your investment already factored in the tax obligation that would ensue, - the miracle of the marketplace guaranteed the optimal price for the share price (if those obligations were not a consideration, the shares would have had a higher price to reflect the higher yield; you got to enjoy the lower price due to the anticipated yield-affecting cost). The market has already implicitly priced all the factors of risk, reward and costs - so what's your complaint, huh?

Well, not quite. The tax factor is mutable and variable from individual stock holder to individual stock holder.

I'd buy this argument for a classification of security (such as a security that is or is not eligible for a different set of tax rules like RRSP's in Canada), but not for any individual security nor for all securities in general. In short, the value of a stock is different from individual to individual depending on their specific tax circumstances.

Plus, you've implicitly assumed that all tax is pure cost with no tangential benefit, which I also don't buy. As you yourself have pointed out, taxes sometimes buy regulation which often increase market activity. Further, the social support network (defense, for example) that provides the environment in which the market acts has a positive impact on prices. To use the defense example, the more secure and peaceful a trading environment, the more efficiently the market operates. In this way, a portion of the cost of the tax is recouped in the increased value of the security.

James.

[jeff]

James, you know I was being somewhat flippant, and somewhat serious... Yes, the value of reducing tax varies from individual, but a change from 22% to 15% on capital clearly benefits share holders in a way that bolsters the stock price. The market responds visibly to changes in expected taxation, and as illustrated this week, by things like interest rate. It's hardly a secret that expectations of lowered tax on capital gains help raise share prices - because their net value increases. Your point that taxes and regulations have value is one I certainly agree with - however, the narrow perspective of the individual being taxed or regulated is that they're against it. More reason their narrow interest should not prevail.


On another topic: on the Gas Price thread I just mentioned subsidies. Not only to we subsidize the oil industry in a number of ways, we also provide subsidies to sugar, ethanol, and (very subsidized) rice. Considering how the tax dollar gets funneled into well-lined pockets by these programs makes me feel even less concerned by the "problem of double taxation than before". Are those benefiting from these subsidies willing to give them up, while they demand tax reductions?

[jBirch]

Originally Posted by jeff

James, you know I was being somewhat flippant, and somewhat serious... Yes, the value of reducing tax varies from individual, but a change from 22% to 15% on capital clearly benefits share holders in a way that bolsters the stock price.

The market responds visibly to changes in expected taxation, and as illustrated this week, by things like interest rate. It's hardly a secret that expectations of lowered tax on capital gains help raise share prices - because their net value increases.

And why would that be? Stock prices go up, encouraging people to keep their money in the market instead of taking advantage of the lower capital gains tax and investing in cash-beneath-the-mattress. If a lot of people took advantage of the lower gains tax rate and capitilised on the profits therein, then you'd see share prices dropping, not rising, as people sold instead of bought. Net effect of any tax policy change? More leverage for the company, not much trickle down to the average share holder, fewere government services and no net benefit really to anyone. Optics and politics more then substance.

Your point that taxes and regulations have value is one I certainly agree with - however, the narrow perspective of the individual being taxed or regulated is that they're against it. More reason their narrow interest should not prevail.

Right, the old "Democracies vote themselves money from the treasury".

On another topic: on the Gas Price thread I just mentioned subsidies. Not only to we subsidize the oil industry in a number of ways, we also provide subsidies to sugar, ethanol, and (very subsidized) rice. Considering how the tax dollar gets funneled into well-lined pockets by these programs makes me feel even less concerned by the "problem of double taxation than before". Are those benefiting from these subsidies willing to give them up, while they demand tax reductions?

Bad topic to raise with a western Canadian...ARCALF, the US Lumber lobby, Devils Lake to name a few. US subsidies are a major trade and political issue for the rest of us global citizens. 'Course, there's no way that a US farmer can compete with a Chinese peasant when it comes to cheap labour so those subsidies are going to grow, not shrink in the near future (and, to stay competitive, so are ours). *sigh*

James.

[jeff]

Originally Posted by jBirch

And why would that be? (snip)

Because the expected future value of a share goes up, hence more people willing to purchase it at a price higher than previously. Champagne all around, except at the Exchequer. Witness the reverse when tax policies go the other way, or when interest rates rise: expected lower yields, so a rush to sell, lowering the prices at the current time.

Originally Posted by jBirch

Right, the old "Democracies vote themselves money from the treasury".

Or, "the class that buys influence from politicians votes themselves money from the treasury" - much more apt.

Originally Posted by jBirch

Bad topic to raise with a western Canadian...

I'm not up on the US/Canada subsidy controversy as much as I am on US vis-a-vis the EU. But yes, the wealthy countries prate about free market while preserving those tariffs that support the best connected or noisiest. Sugar in the US is propped up because of a small number of families (IIRC, influential in the Cuban-American community, and big political contributors), not to mention ethanol and rice as I mentioned elsewhere. The Euro countries do the same, and we all together protect specifically those products that make it hard for (say) Sub-Saharan African countries to compete. Not very nice.

[gojujay]

Originally Posted by jeff

Which book was that - I don't recall? Did I mention that RAH was a foilist?

Wasn't it a requirement of Ancient Rome to gain Roman citizenship that you had to serve 30 years or some such rot, then you'd be a citizen?

As to RAH being a foilist, I knew I liked him for a reason :P

[jeff]

Rome: I dunno. Do you mean "for people not born in Rome?"
RAH: With Italian foil. Still okay?

[gojujay]

Originally Posted by jeff

Rome: I dunno. Do you mean "for people not born in Rome?"
RAH: With Italian foil. Still okay?

Yeah, that's what I mean. As to the Italian foil, I used one at Regionals a couple of years ago, so... Used a Visconti for Sectionals though. The Italian is just not fast enough. I am going back to it at Club level for technique work tho'

[Inquartata]

I missed this one earlier.

Originally Posted by jeff

Then there's all the other alphabet soup: NTSB, EEOC, FEMA, BLM, CDC, NSA, CIA, TSB, DOJ, DOE, and those nice fellas that build the federal highway system and federal reserve. We can argue about each and any of them, and I expect we will, but it's neither fair nor accurate to describe federal expenditures as "largely inefficient social programs".

Well, but none of those are "social programs". They are merely the agencies which administer social programs. It's the programs themselves which want examination and pruning or elimination, and which lead to discontent among economic conservatives. ( Not but what a few agencies themselves might be dispensable as well. )

[Inquartata]

Originally Posted by jeff

Holy Cow! Inq said I was right! I better lay down and let the blood rush back to my head!

The AMA made me do it.

Ah, but the cost of your investment already factored in the tax obligation that would ensue, - the miracle of the marketplace guaranteed the optimal price for the share price (if those obligations were not a consideration, the shares would have had a higher price to reflect the higher yield; you got to enjoy the lower price due to the anticipated yield-affecting cost).

Bah, information is not perfect. Despite my belief in the superior efficiency of markets over government decisionmaking, I am not an absolutist, and I do not accept the efficient-market hypothesis for the financial markets. If all possibly relevant data were indeed factored into the price of a stock there would be no real way to achieve capital gains. ( Ask Warren Buffet or Peter Lynch about this. ) Or to do insider trades. ( Ask Martha Stewart. )

As if they aren't twisting words with a perfectly well understood meaning for their purpose (which might not be more than "buy more of my textbooks")

I will remember that phrase the next time you use some bit of computer-industry cant having a meaning at odds with common layman's usage.

And the alcohol kills the germs, or at least makes you care less about 'em!

I think I'll steal THAT phrase, too, for the "cocktail Party" thread....

[Inquartata]

Originally Posted by jeff

Because the expected future value of a share goes up, hence more people willing to purchase it at a price higher than previously. Champagne all around, except at the Exchequer. Witness the reverse when tax policies go the other way, or when interest rates rise: expected lower yields, so a rush to sell, lowering the prices at the current time.

Witness what now?

After the Bush tax cuts of 2001, the S & P 500 trended down until 2003. Interest rates were also falling during this period.

In 2004, the Fed began to raise interest rates...and the S & P has been trending up as well.

Tax and monetary policies seldom demonstrate the exact effects they are predicted to cause. The complexity of the markets added to human psychology makes for some very counterintuitive results sometimes.

[Epee_Pox]

Originally Posted by Inquartata

Bah, information is not perfect. Despite my belief in the superior efficiency of markets over government decisionmaking, I am not an absolutist, and I do not accept the efficient-market hypothesis for the financial markets. If all possibly relevant data were indeed factored into the price of a stock there would be no real way to achieve capital gains. ( Ask Warren Buffet or Peter Lynch about this. ) Or to do insider trades. ( Ask Martha Stewart. )

I'm not sure that's correct.

If all possible relevant data were known, then of course stock prices would accurately reflect true present value. So there wouldn't be gains/losses caused by "corrections" due to misconceptions about the true value.

However, that does not preclude changes in value due to new information, such as the creation of new value, new efficiencies, new inventions, better/worse management, etc. And these would of course change stock prices if all information were known, giving capital gain or loss accordingly. This truly efficient market would provide greater value to the economy in general, as well, due to its stability, reduction in costs arising from uncertainty, and thus greater participation.

There is something to be said for insider trading -- not when most of us cannot do it, when doing so amounts to fraud on the system -- but if insider knowledge were a prerequesite for engaging in any trades, then the market would be so much more efficient.

We're not going to approximate either situation in the real world any time soon, people being as they are. But just because the facts bear you out in practice doesn't make you correct in theory, does it?

[Inquartata]

Originally Posted by Epee_Pox

However, that does not preclude changes in value due to new information, such as the creation of new value, new efficiencies, new inventions, better/worse management, etc. And these would of course change stock prices if all information were known, giving capital gain or loss accordingly.

If all information were factored in, that would include information about coming attractions, as it were. For instance, new drugs are regularly followed in their progress through the testing and approval process. Acquisitions and the like are always rumored well before they happen. SEC investigations or trouble with the IRS seldom come out of the blue. The only truly new informations involves things which come as surprises even to management...

And I guarantee that Warren Buffet doesn't take positions because he hopes that management might someday come up with a completely novel strategy or product. He takes them because he finds anomalies in the market's valuation of companies as they stand.

[lochinvar]

Originally Posted by Inquartata

And I guarantee that Warren Buffet doesn't take positions because he hopes that management might someday come up with a completely novel strategy or product. He takes them because he finds anomalies in the market's valuation of companies as they stand.

WRONG! BEEEEP!! But thanks for playing...

He takes them based on whether he thinks the market position in question will be able to produce a profit before the End Times comes upon us.