Interesting question for Robert Reich

Hard to believe, but the Trump administration is proposing yet another massive tax windfall for the rich.
It would be to reduce their capital gains taxes. Those are taxes on the increased value of their stocks and bonds, businesses, and other valuables, when they sell them. Trump would do this by eliminating whatever portion of that increased value was due to inflation.

How about a logical defence of why inflation gains themselves should be taxed? Something from perhaps theory or even morality?

26 thoughts on “Interesting question for Robert Reich”

  1. Luckily Mr Reich has already made colossal sums of money, and can afford to live in the Uber-white and rich enclave of Malibu, a town which works very hard indeed to restrict who can live there.

  2. whatever portion of that increased value was due to inflation

    Isn’t that by definition just nonsense. Inflation has increased the price but not the value of assets.

  3. I note that the uk Government indexes capital gains for inflation. Next expect the grand potato, chip in claiming this to be tax avoidance.

  4. “I note that the uk Government indexes capital gains for inflation.”

    Not for some time I think – that was one of Gordon Browns little tricks, removing the indexation of capital gains for inflation.

  5. Investors should absolutely get inflation tax breaks, in precisely the same way we workers do with the annual inflation-linked increase in income tax thresholds.

    Oh, wait…

  6. Income can often easily be turned into capital gain and vice versa. Exempting a proportion of capital gain from taxation is a distortion.

    I dislike the overuse of the word windfall. Ditto loophole.

  7. In the UK, indexation for inflation was frozen in 1998 and replaced by taper relief which sort of achieved the same thing. Both disappeared in 2008. Since then people have paid CGT on inflation.

    Alistair Darling was chancellor.

    For companies inflation was frozen as at December 2017. Expect it to disappear. Just a prediction.

    That’s the current lot. Can’t even be bothered to remember who chancellor is. Certainly not a Tory.

  8. @DaveC – the portion of the nominal gain that Trump is proposing to exempt is not part of the capital gain . Hence, if successful, he will be removing the distortion.

  9. “Investors should absolutely get inflation tax breaks, in precisely the same way we workers do with the annual inflation-linked increase in income tax thresholds.”

    The personal allowance in 1990 was £3k. Its now all but 12k, an increase of 300%, while inflation has increased prices by about 120% over the same time period. Can I have a 300% increase in the base value of my assets held since 1990 too please?

  10. @Bongo he will be introducing an incentive to convert income into capital gain. That’s the distortion.

    Also, what Alex said as dividend, interest and CG are are matter of choice to some degree.

  11. You’re going to have give us an example Dave C, one with the inflation disregarded, and one without.
    Then we can decide which example has the distortion.
    Do remember that if you sell a business rather than keeping it and drawing an income from it, then the buyer also has the choice of keeping it or drawing an income from it, and so round it goes with the government getting a cut of income at some point.
    As things stand, there’s a distortion in favour of not selling your business, the result of which is you don’t either spend the money or reinvest it in some other project which adds to the great creative destruction that occurs in a market economy.

  12. Income and capital gains are taxed differently because of the risk.

    Put £100 in a bank account at 3% interest and you know what you’ll have one year later.

    Invest £100 in an asset and you might have nothing or double in a year’s time.

    So they are taxed differently to compensate the risk taker.

    Dave C. You’re right. You have a choice. Which choices have you made? The safe ones? Not much growth in the economy if no one takes a risk.

    How are you going to encourage that?

  13. “Can I have a 300% increase in the base value of my assets held since 1990 too please?”

    If you’ve owned a house since then you’ve a damn sight more than 300%.

    AndrewC,

    Value is now created mostly without the need for capital. All the big techs, startups, heck the company I work for, all started with a laptop and kitchen table. The risk on that kind of investment is basically zero.

  14. BiG but at some point, capital is required to scale up the offering. These days, it is often not via share offerings to the public but through venture capital. But it is difficult to scale to cover public liability etc without any external capital.

  15. I’m sure Mr Reich employs first class tax advisers.

    All he has to do is ask them to calculate his gross gains and pay the tax on that.

    Simple.

    What do we bet that he forgets to instruct them accordingly?

    Also simple.

  16. If you’ve owned a house since then you’ve a damn sight more than 300%.

    And what a howl would go up were such gains taxed, as logically they should be.

  17. “Value is now created mostly without the need for capital. All the big techs, startups, heck the company I work for, all started with a laptop and kitchen table. The risk on that kind of investment is basically zero.”

    If that is true Biggie how come a sharp operator like you isn’t a billionaire already?

    Anything that encourages investment has the potential to bring us a better future. Another point for Trump as opposed to the legion of polipigs and bureaucratic twats who seem determine to pass every scrap of evil they can to ensure everybody’s future–except theirs of course–is as dark as possible.

  18. @ BiG

    “All the big techs, startups, heck the company I work for, all started with a laptop and kitchen table.”

    Gee, those big techs and start-ups won’t have many shareholders then. Because if no investment is needed, they won’t need to issue shares. How many shares does Google and Amazon have in issue? If you’re right shouldn’t be more than a 100. Maybe a 1,000 tops.

  19. @ BiG
    The risk on that kind of investment is a 90+% failure rate.
    The Value at Risk is *not* basically zero – it is basicallly umpteen hours work when the entrepreneur could have been earning money working for someone else.
    I’ve worked for a firm that had four recapitalisations (outside money coming in and the stafff options written off) in a dozen years because we had a good product and lousy salesmen

  20. “If you’ve owned a house since then you’ve a damn sight more than 300%”

    Well a) I don’t own a house, b) its farmland, c) its not the market price I’m talking about its the base value for CGT purposes. The market price of farmland has indeed gone up significantly, however were I to sell it I would be faced with a CGT bill on the difference between the price I acquired it at, which for me is about £2k/acre in 1982, and the price today, which is somewhere between 8 and 10k. The inflation increase since 1982 is about 230%. So my base value for CGT should be £6.6k, to account for inflation. Why should I pay tax on the increase purely down to the government printing money?

  21. The failure rate is not risking money you put in, obviously. The failures and recap needs I have seen have been generally firms “hiring ahead of the curve”. When the curve doesn’t catch up as planned, it’s very easy to run out of money very quickly. So going bust or having to sell your firm at a knock-down rate is entirely avoidable if you aren’t overstretching yourself.

    Google and co have shareholders because the creators of those companies, quite understandably, would like to enjoy some of their created value while still alive. And cash piles to buy up and close down competitors, that kind of thing.

    Ecks, I doubt anyone could become a billionaire based on my little area of specialisation. I do actual real stuff, creating of things, which is not scalable in the way a big tech can. It takes lots of expensive people and very little technology to do stuff for an extremely limited and specialised clientele. The secret of the billionaires is to do something that takes few expensive people and lots of technology to sell shit to the entire world.

  22. Because 50-cent uses few expensive people and lots of cheap technology to sell lots of shit to lots of people.

    I use lots of expensive people and little cheap technology to sell a little shit to a few people.

    I do, however, sometimes think about self-identifying as an African American with advanced rap skills, and insist the government pays me the millions (and provides the, uh, fringe benefits) I have been missing out on because of society’s failure to acknowledge my self-identity.

  23. Bongo, there’s a distortion either way, but a slightly different one. If the change described is implemented, there will be more zero-coupon products around.

    I’m just answering Tim’s original question, not trying to optimise the tax system.

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