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139 comments on DrumBeat: January 11, 2009

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JimK on January 11, 2009 - 7:10pm Permalink | Subthread | Parent | Comments top

I think tax structures cause speculation & investment to get mixed up.

I think that stock buybacks are pre-tax but dividends are post-tax. I.e. if a corporation wants to give stockholders some return on their investment, the corporation's tax bill is reduced if they buy stock back, rather than pay dividends.

If stock buy-backs were not treated as an expense, but instead as a return of profit, i.e. if the buy-back didn't cut the corporate tax bill, that would help encourage payment of dividends - or at least reduce the discouragement.

Step two, of course, is to cut the tax that investors pay on dividends received, and to increase the capital gains tax.

Next, one could put in more of a ladder. Maybe four classes of capital gains:

Very short term = two months or less
medium short term = more than two months but less than a year
medium long term = more that a year but less than six years
very long term = more than six years

Crank up the tax on very short term gains, and let it remain quite moderate for very long term gains. It's one easy way to encourage folks to pay more attention to longer range issues.

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WNC Observer on January 11, 2009 - 8:00pm Permalink | Subthread | Parent | Comments top

There are lots of talking heads in Washington and Wall Street that are certain that the economy is better off when dividends are taxed high as ordinary income, and capital gains are taxes preferentially low. Some of these people would like to see capital gains virtually untaxed.

They have it totally backward, of course. The only concession to capital gains that makes sense is to index the basis for inflation. Otherwise, speculative gains (for that is what capital gains are when you back out inflation) should get no special preference at all. In fact, IMHO all capital losses should be treated the same way we treat gambling losses - you can only use them to offset winings.

On the other hand, I would like to see corporate income tax payments essentially be transformed into a tax withholding that passes on to the shareholders along with their dividends.

I suspect that if these changes were made, we would return to a bias toward dividend income rather than capital gains, and there would be more pressure on corporate managements to perform consistently over the long haul, rather than play short-term games.

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tstreet on January 11, 2009 - 9:21pm Permalink | Subthread | Parent | Comments top

I assume you realize that almost all stock losses are traded off vs stock gains, with the exception of a $3,000 carryover against ordinary income. Capital stock losses may be carried over, but with the exception of $3,000 can not not all be considered a loss for the current year. Having said that, I do agree there should be more emphasis on dividends.

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enemy of state on January 11, 2009 - 9:41pm Permalink | Subthread | Parent | Comments top

I would like a change of emphasis towards dividends, particularly if the growth economy is over. We can still invest money in hopes of getting current income, but the expectation of cap gains will be greatly diminished post growth. It is better if the incentives don't push people to try to fight the trend.

Capital loses, are almost treated like gambling loses. If you have a million dollar capital loss (and don't get gains to offset it), you will die long before you use up your carryover.

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139 comments on DrumBeat: January 11, 2009

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