I think the best way to use taxes to stimulate investing is to have an AMT that taxes total net assets. A flat 1% AMT on assets over 1 million would let someone liquidate ~4% of their holdings a year without negative tax consequences and "Safe" investments are going to look less attractive.
Note: I am suggesting an AMT so if you have 10 million in assets you will pay at least (10M - 1M) * .01 = 100k in taxes, but if you would pay 101k in income + capital gains taxes nothing changes.
PS: People trying to avoid capital gains on highly appreciated assets distorts the market. This would be a "cheep" way to increase flexibility without dramatically impacting tax revenue. It most heavily impacts passive / safe investors while having little impact on those with strong 12+% returns.
But why is that better? Why have a massive inefficient government spend a vast sum of money when instead it can just defer some tax collection, letting these investors take the risk and optimize for success?
I can assure you with 100 percent certainty that Rentech et al will relatively thrive with the trading tax.
This tax will reduce liquidity perhaps, make the market pricing inefficient (larger spread). This will hurt mutual funds the most by increasing their baseline costs. Which in turn will hurt pension funds, endowments, etc.
RenTech and others will thrive in the midst of those inefficiencies.
I think this is actually a very real problem. What would happen if I could sell one investment and immediately buy another investment vehicle and not have to pay taxes till I transform it to something that's obviously not an investment. If done right this should just make the market more efficient because it prevents lock in.
Legislators are already under the imperative to backstop public equity markets (and hence all the biggest companies) because the most active voters also have a significant amount of their wealth in the public equity markets.
And also all the state and local governments are heavily depending on equities to deliver major gains to fulfill their deferred compensation for government employees (otherwise they have to increase taxes to make up for lack of any performance), so the more state and local tax you pay or are able to pay, the more invested you are in backstopping the markets also.
This conversation makes me wonder about how tax breaks to incentivize certain types of investments are perceived in the board room, especially over the long term.
It sounds like if taxes are high, I invest and play for time, waiting for some administration to offer me a tax break so I can take money out. Is a targeted tax break then also a chance to extract profit?
What do you mean “force them to invest”? This is a tax on unrealized capital gains. The money is already invested. If anything they’d need to sell investments to pay the tax.
Sounds like something the same folks who think taxing unrealized gains is a good idea and won't instantly tank the entire world market would think up and then put into law.
I don't buy this, investors will still take as much ownership stake as they can get in the market to maximize profit regardless of how much they are taxed. Since interest rates are so low, the only real way to grow money in through investment and capital gains anyway.
They're treated like investments partially because they have special tax advantages that other investments wouldn't have. So part of the long term solution may be to actually treat them like investments.
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