November 10th, 2012

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Capital gains

Here there was a post about a capital gains tax rise being "suicidal."

And I said that the capital gains loophole actually hurts growth.

Well, which is it?

Capital gains is basically just interest. Let's try an example under US law. I'm not an accountant, so I'm probably going to get some details wrong, but I'll try anyway:

If I lend you $300 at 5% interest per annum, and you pay me back $315 at the end of the year, I made $15. That's short-term capital gains, and is taxed more like regular income, so (let's pretend I do this for a living and am already paying the top rate) I owe about 30% of it. So I made (roughly) $10 off the deal and the government made $5.

But if I lend you $300 at 5% interest per annum, and you pay me back $345 in about three years, I made $45. That's long-term capital gains, so even at the top rate, I only owe 15%. So I pay the government about $7 and clear $38 profit.

I get to keep a higher ratio of the interest because I let that particular loan mature for more than year. That's the only reason.

But if the top rate were the same as for short-term gains, I would pay the government $15 and keep $30. Would this harm growth?

Well, the lower rate is an incentive for long-term capital loans, and a tax reason not to demand one's money back so soon. That's it. Bringing long-term capital gains tax back in line with other taxes hardly seems to be the great economic distorter the Steve Forbes types claim it would be.

Now, let's be clear. Under US law, there are four different kinds of capital gains, and each has a personal exemption--an amount of capital gains income that is untaxed. If I don't lend much money, or buy much stock, and I make less than that exemption for each, I wouldn't even have to report it to the IRS as income, really. (I probably should, but since I don't owe anything, it's not a crime if I don't. [I am not accountant, don't take my advice on this.]) So my $45 is not going to be taxed if it's the only capital gain I made that year.

The real question is, what about someone who's lending $3 000 000 000? We can call it "buying bonds" or "investing in stock," but that's what he's doing. If he makes $450 000 000 profit, he's well into the top bracket. Do we really need to give that guy a deal where he pays a 15% rate instead of something in the 25%-35% range? Is incentivizing long-term loans really that good for the economy, that we should give up almost half the tax revenue?

Now, I said it was bad for growth. Maybe that's wrong. But I think it's dangerous to have too much money going into the hands of the lender/investor/owner class on a regular basis. If our tax code favors investors over those they invest in, we may find we are underpaying the actual workers and engineers in favor of a super-rich moneyed class. And history supports the idea that very high concentration of wealth eventually undercuts demand and crashes the economy, as in 1929 and 2008. But maybe I'm making too much of a correlation between the tax code and the wealth disparity in my country.

So, Republicans -- What's the Next Step?

There's been some discussion here about the right wing response to the shocking, I tell you, SHOCKING re-election of President Obama and the over-the-top reaction we've been seeing. A lot of it has involved personal idiocies from Freeper vowing everything from cutting off disabled Obama supporting relatives from support (I kid you not) divorcing spouses, spitting on neighbors, moving into bunkers, etc.

And there have been some hints of payback from people actually in a position to hurt either Obama supporters or perceived Obama supporters. The CEO of the same coal company that forced employees to spend a day without pay listening to a Romney speech laid off over a hundred employees on November 9th after publicly reading an unctuous and insulting "prayer," and on Thursday a man claiming to be a business owner in Georgia called C-Span and boasted about cutting employee hours and laying off two people because of the election. “I tried to make sure the people I laid off voted for Obama,” he said.

The fact remains -- Obama won.

Attempts at limiting the franchise and making it hard to vote didn't help Republicans. It just pissed off a lot of voters to the point where they were willing to stand in line for seven hours to vote for a Democrat. Threatening to fire employees if Obama were re-elected didn't help Republicans. It just highlighted the insidious damage Citizens United has done to our political environment. Attacking blacks, women, gays, and hispanics didn't work. It just galvanized a large portion of black, gay, female, hispanic, etc. voters into fighting Republicans.

So my question is, Republicans, what's the next step?

A couple of weeks ago, Frank Rich wrote a piece in Salon about the fact that losing an election does not seem to make the Republicans reassess their extended march to the right. They just double down and march further to the right.

Is that what's going to happen, Republicans? Because I have to tell you, you've been marching to the right for so many years you're on the verge of stepping off one hell of an ideological cliff. Are you going to openly embrace the genteel racism of Charles Murray? Are you going to openly work to limit the vote only to people of a certain income level? Is the aim going to be disenfranchising large portions of the public and telling the rest, "vote for us or we'll fire you?"

Just curious.

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Quaero togam pacem.

Doom's charms

OK, now for something more abstract and general, or as some of us might call it, "academic". HA! ;-D

Humankind lives in a cosmic shooting range, is the conclusion of astronomers. There are so many asteroids dashing through our Solar system that the next mass extinction seems a matter of time.

The subject ain't new for Hollywood either. We've all watched Armageddon, where Bruce Willis and his fellows were handed a nuke in a box and sent to blow a giant asteroid to pieces before it had smashed against Earth. Doesn't matter that from a strictly scientific POV that would've been a useless effort, because in result it'd substitute extinction by a massive meteorite impact with extinction by a meteorite shower. But that doesn't matter, Armageddon wasn't a movie about physics, it was about morality. It was about things like selflessness, courage and love.

And that's the point, the Apocalypse stories are not supposed to be scientific treatises, they're a social story. They don't contain facts, instead they teach moral values. People obsessed with the end of the world are seldom versed in astrophysics or cosmology, but they're not supposed to be: they speak of Good and Evil, and the meaning of life.


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