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| ▲ | Retric 15 hours ago | parent [-] | | Sign me up for some interest free loans then. Deferring capital gains is a huge windfall. Reinvesting money getting special treatment provides zero benefits to the economy. It falls under the fallacy that rich people can avoid investing their fortunes, inflation already makes that a nonstarter. The only result here is a handout. | | |
| ▲ | AnthonyMouse 15 hours ago | parent [-] | | Business expenses are tax deductions because business taxes are on profits and profits are calculated as revenue minus expenses. Taxing businesses on revenue rather than profits doesn't work because it would bankrupt every business with slim margins, which is most of them, while effectively cutting taxes for the ones with the thickest margins and creating a massive tax subsidy for vertical integration. > It falls under the fallacy that rich people can avoid investing their fortunes, inflation already makes that a nonstarter. If all someone cared about was avoiding inflation they could just buy a stack of precious metals. Moreover, the return from typical passive investments (e.g. S&P 500) significantly exceeds the rate of inflation. The preference for investment is as opposed to spending. If inflation is at 3% and someone is getting a 10% return from stocks, they can avoid real value loss while still spending up to 70% of the nominal profits. But we'd rather people build factories and develop new drugs and technologies than buy second private jets and third personal mansions. | | |
| ▲ | Retric 14 hours ago | parent [-] | | > Business expenses Investment isn’t a business expense. > If all someone cared about was avoiding inflation they could just buy a stack of precious metals. Capital gains of precious metals “yield” drops you below inflation. > But we'd rather people build factories and develop new drugs and technologies than buy second private jets and third personal mansions. Someone needs to do that for your hypothetical 10% S&P gains. Giving handouts to wealthy people hardly discourages them using a private jet, just the opposite. | | |
| ▲ | AnthonyMouse 14 hours ago | parent [-] | | > Investment isn’t a business expense. Investment is the thing where you pay a business expense today expecting a return in the future. > Capital gains of precious metals “yield” drops you below inflation. This is a defect in the tax code. Taxing inflation as a capital gain is ridiculous. > Someone needs to do that for your hypothetical 10% S&P gains. And then those companies get a tax deduction. Or in many cases they do make those returns without doing those things, because a lot of those companies have high returns by buying off regulators to constrain competition and then charging high margins to captive customers, which is another thing we don't like to promote over the ones actually making productive investments. > Giving handouts to wealthy people hardly discourages them using a private jet, just the opposite. The tax isn't deferred on the money used for personal consumption. | | |
| ▲ | Retric 14 hours ago | parent [-] | | > Investment is the thing where you pay a business expense today expecting a return in the future. Investments like land aren’t necessarily consumed. You can reasonably deduct when an actual expense happens, but buying steel etc to be used next year doesn’t guarantee it is actually used rather than sold. > Taxing inflation as a capital gain is ridiculous. It’s a useful feature to discourage the exact wasteful approach you proposed. > The tax isn't deferred on the money used for personal consumption. Money is fungible, you hand me money to buy land and I can redirect money I would have spent to buy something else. | | |
| ▲ | AnthonyMouse 13 hours ago | parent [-] | | > Investments like land aren’t necessarily consumed. You can reasonably deduct when an actual expense happens, but buying steel etc to be used next year doesn’t guarantee it is actually used rather than sold. In many cases you're buying something intending it to be consumed, even if it hasn't been yet, and have to buy it ahead of time because you have to get it installed or connected or forged etc. before it can start being used. If you then sell the steel instead of using it, the sale price gets added to your income and the cost was already deducted previously, so that cancels the previous deduction and you're back to paying the tax on it. > Money is fungible, you hand me money to buy land and I can redirect money I would have spent to buy something else. In order to get a tax deduction for buying land to build a solar farm, you have to buy land to build a solar farm. You can't spend that money on something else and still get that tax deduction. You can spend other money on something else, but the amount of money you have available to spend on other things has gone down, and the point is to increase your incentive to build the solar farm, which it is effective in doing. | | |
| ▲ | Retric 13 hours ago | parent [-] | | > If you then sell the steel instead of using it, the sale price gets added to your income and the cost was already deducted previously, so that cancels the previous deduction and you're back to paying the tax on it. An interest free loan means you’re ahead in that transaction but society is worse off when people do useless things to avoid taxes. > You can spend other money on something else, but the amount of money you have available to spend on other things has gone down One can’t invest all their money in any given year or one lacks the ability to buy food. You also can’t spend all your money in a given year or you go broke. Thus both saving and spending are always happening and the government reducing the amount of money you’re required to save means you can up spending. There’s zero meaningfully differences between piles of money here. | | |
| ▲ | AnthonyMouse 12 hours ago | parent [-] | | > An interest free loans means you’re ahead in that transaction. Except that you had to sit on some asset in the meantime instead of using it for something. Or if that asset was a productive investment that yielded returns, the government is ahead in that transaction, because the returns from investing the deferred taxes increase your taxable income. > One can’t invest all their money in any given year or one lacks the ability to buy food. You also can’t spend all your money in a given year or you go broke. You can both invest all of your assets by taking on new debt to buy food and spend all of your assets and have nothing left. Both of those are things some people actually do. And for people who neither spend nor invest 100% of their assets, different incentives will affect the proportion of each one they do. > Thus both saving and spending are happening and reducing the amount of money required to save means you can up spending. Suppose you're paying a tax rate of 33% and have access to investments with a 10% return. If you have to pay the tax when you get the money then if you get $100 you immediately lose $33 and can only invest $67, and if you get 10% interest on the $67 then you can only reinvest $4.49. In other words, your compounding rate is now 6.7% instead of 10% and after 10 years you'd have $128. If instead you pay the tax when you spend the money, your compounding rate is 10%. So if you started off with $100, after 10 years you have $259 before tax and then you pay a third of that in tax and get to spend $174. So in one case you have the choice between spending $67 today or $128 in ten years, in the other case your choice is between spending $67 today or $174 in ten years. That increases the incentive to invest the money now and spend more of it later, instead of spending it now. You do then get to spend more of it later, but the extra money you get to spend is value that only exists because of the additional investment. And then the government gets $85 in taxes in 10 years instead of $33 today, i.e. it got a 10% ROI too. | | |
| ▲ | Retric 12 hours ago | parent [-] | | > Except you had No, you benefited from sitting on that productive asset. Getting a free stock option is still a meaningful benefit even if you never case it in. Further assuming the asset kept up with inflation you’re better off after the sale vs holding cash for that same period. > by taking on new debt to buy food The money you got from that loan is an asset you’re not investing in that hypothetical. As to “spend all of your assets and have nothing left” yes I mentioned going broke was an option repeating what I already said isn’t an argument here. > Suppose you … Ignoring the possibility to just spend more today and also spend the same amount in 10 years is disingenuous here. Especially as assuming consistent rules you also benefit 10 years from now, so you get to spend more today and also spend more in 10 years. Really free money lets you spend more, there’s no way around that. Further with the US tax code nothing says investments need to be in the US or capital gains ever get taxed this often is a pure dead loss for US taxpayer. | | |
| ▲ | AnthonyMouse 12 hours ago | parent [-] | | > No, you benefited from sitting on that productive asset. Getting a free stock option is still a meaningful benefit even if you never case it in. If you buy a ton of steel with no intention of ever doing anything other than selling it for the same value as you paid for it in a while, you haven't benefited from it and have in fact cost yourself value in opportunity cost because other investments return more than that. If you get a free stock option and then there is a 30% chance it turns out to be worth something, the government benefits from the same 30% chance that you'll get money from it which will then be taxable income. > The money you got from that loan is an asset you’re not investing in that hypothetical. Loan principal doesn't create net assets. You get new money and new debt at the same time and they cancel. > As to “spend all of your assets and have nothing left” yes I mentioned going broke was an option repeating what I already said isn’t an argument here. I took your implication to be that it was something bad and so nobody would purposely do that. But people purposely do it all the time. They have some money and then choose to spend all of it instead of investing any of it. > Ignoring the possibility to just spend more today and also spend the same amount in 10 years is disingenuous here. Even that scenario still requires the amount of investment to increase. What you'd be doing is spending some but not all of the taxes deferred on the amount you initially invested, e.g. instead of spending $33 and investing $33 you invest $37 and spend $42, and you had ~$12 extra because of the taxes deferred on the $37. But now you're investing $37 instead of $33, and that's the minimum you could invest to get the same after-tax amount in ten years because now you haven't paid the taxes yet. Doing that is also more disfavored because you get better returns from diverting more money to investment but the benefits of immediate spending haven't increased. | | |
| ▲ | Retric 7 hours ago | parent [-] | | > If you buy a ton of steel with no intention of ever doing anything other than selling it for the same value as you paid for it in a while, you haven't benefited from it and have in fact cost yourself value in opportunity cost because other investments return more than that. Your argument was buying a productive asset useful for the business. My argument is that’s a prediction which may be false, you suggesting no they are just randomly buying steel is losing your argument upfront. > Loan principal doesn't create net assets. You get new money and new debt at the same time and they cancel. Leverage is based on loans generating assets that can be invested. It’s clear your not actually arguing in good faith. |
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