"Secular stagnation" sounds boring, but it's really important

[Marvin the Martian]

Good question and I'll need to research it more. The central goal of the tax was to spur investment in assets that generate economic activity. I really respect the Tax Foundation and the data is concerning for the value capital gains tax provides. However, there are quite a few other factors that play into GDP growth, so I am not ready to simply give up on the idea of capital gains.

An adjacent article talks about exclusions and art is one of them, so your Trump humor is unfortunately, incorrect
https://www.taxpolicycenter.org/briefing-book/how-are-capital-gains-taxed
Gains on art and collectibles are taxed at ordinary income tax rates up to a maximum rate of 28 percent.

Ironically, Reagan proposed an effective elimination of capital gains (particularly for the highest bracket), but that didn't last:

The Tax Reform Act of 1986, signed by President Ronald Reagan, raised tax rates on capital gains and lowered rates on ordinary income but set the same 28 percent top rate for both. The goal: reducing tax planning devoted to converting ordinary income to capital gains. The policy worked—briefly. Successive congresses raised the top rate on ordinary income (now 40.8 percent) and reduced the top rate on capital gains (now 23.8 percent). As the gap between the two rates grew, so did the incentives to manipulate the system. Now might be a good time to once again tax capital gains and ordinary income at the same rate, which could be higher than today’s rate on capital gains but lower than the current rate on ordinary income.

The art example is wrong, but it is still capped less than normal income, which is strange to me. It may explain why art has become a haven for money laundering? So Trump sells gold instead.... .

 

[JamieDimonsBalls]

They might be different people in the stratosphere, but there is always somebody. The point I tried to make is that the transaction income is usually where we find the "rocketing" increases and that income is different from salaries and bonuses.

That is true, but they make that much money because they generate tremendous returns for their investors. The 2% management fee is nothing to scoff at, but that hardly gets a HF manager near $1B in annual HF income. It's a different model than being a CEO, so I don't view it as an apples-to-apples comparison.

I used GS as a bumper sticker symbol for those who are invested in reserving the monstrous incomes for the hedge fund industry. If there is a more appropriate symbol, I'll gladly use it. I was unaware of what effect tax reform had on carried interest. I'll look into that. The search I did about this after TR passed didn't reveal this. Thanks for bringing it up.

I favor capital gains tax rates for capital assets that have a direct relationship to producing goods and services. Capital that doesn't serve that segment of the economy, but instead are simply a new kind of paper, (like the paper we read about in The Big Short) not so much. But I'm willing to consider the arguments about that.

A more appropriate target would be a Hedge Fund, so maybe Bridgewater can be your punching bag going forward. I think there is a valid issue with the way that some Hedge Funds go about investing compared to Private Equity funds (another target of criticism) which I speak to broadly (i.e. includes VC, minority equity, growth equity, buyouts, etc.). That being said, Hedge Funds, particularly multi-strategy funds, are becoming more difficult to pin down. Some of them hold assets for decades (e.g. Paul Singer's Argentine Bonds), others invest distressed private assets or provide high-yield loans to private borrowers that need creative financing.

Private Equity invests debt and/or equity in companies at various stages of their life-cycle in order to generate a return for its fund, so more of a typical long-term investment. Most fund managers contribute and roll a significant amount of their own personal capital into the fund to align themselves with their LPs. PE portfolio companies are typically designed to be flow through, similar to the partnership structure. GP salaries are taxed at ordinary income rates, as are cash bonuses. The Carry is the profit streams flowing back into the fund and back to the GPs and LPs. The question becomes, if the LPs are able to claim capital gains taxes because they made investments, why shouldn't the GPs? They contributed less capital per investment dollar returned, but also spent their time creating value out of the investment.

If you think about it, the 2 and 20 structure is simpler and better alignment than what you see for publicly company executive compensation.

 

[IUJIM]

That makes sense for unrestricted stock. But what if the stock is restricted such that it can't be liquidated (say to outsiders) until the expiration of a specified time. Still taxed at the time of receipt?

For restricted stock, the RSU's become taxable as they vest.

 

[JamieDimonsBalls]

For restricted stock, the RSU's become taxable as they vest.

I tend to see 5 years now as a benchmark (+/- 2 years)

 

[IUJIM]

I tend to see 5 years now as a benchmark (+/- 2 years)

5 years is pretty customary.

 

[JamieDimonsBalls]

5 years is pretty customary.

My RSUs vest over 5 years and I'm not even an executive!

 

[SuperHoosierFan]

Yeah. I see that this is going nowhere.

Damn, I’m glad I’m ignoring whoever the hell you’re talking to. I don’t mind wasting my time, but I’m picky on how I waste it.

 

[Sope Creek]

So if I don't know, you won't tell me?

I don't think mjvcaj knows, and my guess is that he senses he's been caught in a self-made trap.

If I'm reading him correctly - which is no certainty because it isn't clear what he's wanting to say - he's saying something like (a) there's more room in consumers' budgets because we haven't hit the peak debt-to-GDP ratio that appeared during the subprime debacle and then the depths of the resulting Great Recession, and (b) GDP growth results only from consumers maxing out their borrowing.

If that's what he's saying, then his understanding of consumers is that they're only economic assets to be exploited. There's no consideration of increasing free cash flow for consumers to spend on other stuff, such as washers, driers, refrigerators, vacations, eating out and the like - and medical, dental, and vision expenses or the insurance premiums to cover those costs. And his comment about other countries' consumers being more leveraged than US consumers doesn't really provide an apples-to-apples comparison, since their social systems provide quality medical care for a relative song compared to what that costs in the US.

Frankly, Rock, I'm with you, I have no idea what he's trying to say.

 

[sglowrider]

Bottom line the whole economy is based on primarily on short term goals only.
It's a touch excusable for corporations but not from the perspective of global competition -- and it's a criminal act from the perspective of the government's budgetary and strategic approaches vis a vis of providing a platform for long term growth.

 

[i'vegotwinners]

Bottomline the whole economy is based on primarily on short term goals only.
It's a touch excuseable for corporations but not the from perspective of global competition -- and it's criminal act from the perspective of the government's budgetary and strategic approaches vis a vis of providing a platform for long term growth.

it's the reality of what capitalism is.

capitalism is basically an algorithm in of itself, and can only behave in a certain way.

that way is to do all in it's power to maximize short term share holder value, or what's in the monetary best interests of those steering the ship, or some compromise between those two options. .

in a totally free market, capitalism will eventually implode in on itself.

neither pure capitalism nor pure socialism can work long term.

they need each other to work, and both need to be regulated to keep either from taking over the other, to the point the synergy that allows the hybrid to work is lost.