It'd be pretty easy to levy completely fair and progressive tax structure that only directly impacts the wealthy, and is sufficient to cover the spending.
- Tax capital gains >1m a year as regular income.
- Fix loopholes that allow for equity as collateral for perpetual loans without ever selling the underlying.
- Remove step up in cost basis on inheriting assets.
- Tax stock buybacks at same level as dividends.
- Don't bring back SALT deduction.
Pretty easy to justify. Why should capital gains get favorable tax treatment over income, especially for wealthy who have this as a primary income source? Overall, proportion of assets allocated to investment capital would not dip due to change in tax, where else would they put the money?
Buybacks are effectively a technique to consolidate wealth primarily for the CEO and board of a company, who are paid primarily in equity comp. Very few companies do buybacks for legitimate operational reasons, like purchasing stock when it's undervalued to reduce operational expenses re dividends. It's mostly a buy at any price to juice valuations. I'm not against companies returning money to shareholders, but buybacks shouldn't be tax advantaged vs dividends.
SALT is a direct handout to wealthy homeowners. The fact that this is even in the spending bill shows how far the narrative of fixing wealth inequality has deviated from the actual legislation.
I suspect Congress doesn't do these things because it would actually impact their own finances. And of course they need unilateral agreement on any approach.
>- Remove step up in cost basis on inheriting assets.
my impression is that the step-up cost basis is there because you've already paid the estate tax when the assets were transferred to you? otherwise you'd end up getting double-taxed.
I buy stock at price A and sell, it later, at price B. Assuming B > A, (if it isn't this is a whole different thing) then I am taxed on the gain the stock made, I pay tax on the value of (B-A). On the other hand, I do have all of the (B-A) cash, which is nice. (Or as my tax professor once said, it's always better to have more money rather than less, and to die later rather than sooner.)
Now let's say I still buy the stock at price A, but instead of selling I hold until my death and my heirs inherit. They pay the estate tax, yes (presuming that my total wealth is massive enough to reach that level), but they pay it as a % of value B- at this point no one owes the government any of that (B-A) tax.
Is that "double taxation"? Well, it kinda depends on your perspective, and this is a situation where perspective seems to be determined by bank balance. If you are wealthy, of course you feel that it is double taxation- it's two separate bites of taxes on the same underlying asset! If you aren't, then what you notice is that somehow this death has created a situation where the government never got it's cut of that (B-A) difference, so this is avoiding taxes.
> If you aren't, then what you notice is that somehow this death has created a situation where the government never got it's cut of that (B-A) difference, so this is avoiding taxes.
While capital was transferred, value increase was never really monetized. Would it not be fair to say that it will be taxed only once it turns into money, against the B-A gains, and A is taxed according to normal inheritance rates.
Of course, this has a huge practical issue of knowing what A was, which could be a while back.
Taxing the B-A gains when they are sold, even after death, is what people mean by "eliminating the stepped-up basis" as the original poster suggested doing. At present, when a heir inherits at B they pay estate tax at B, but then if they sell at price C they only pay tax on (C-B).
As for knowing what A is, if you don't know it you can always fill in 0 and pay slightly more tax than you should, to be safe, so you don't caught in an audit. As of 2011 the IRS requires all brokers to track and report the cost basis for all purchases- that is, any purchase made after 2011 when you sell it they will tell you and the government what the value of A should be.
> this has a huge practical issue of knowing what A was, which could be a while back
So why not put the burden of establishing a basis (A) on the person seeking to claim its benefit — who, in this case, is also best-positioned to gather such evidence?
Should they keep poor records, they lose the benefit of that basis, and will instead pay taxes on (B-0).
Why don't we tax the dead? Seriously, they aren't going to object! Why shouldn't we?
Who we tax, and what way, is entirely a choice made by a society. I routinely pay sales tax out of the income that I paid income tax on, and pay extra tax when I buy alcohol- those are all decisions made by society that they were the socially correct way to pay for everything we jointly need as a society. That's all taxes are.
The modern estate tax was created in 1916. In 1906, then President TR gave a speech supporting this kind of tax as a way to try and reduce the power of dynastic wealth- to keep American society from being ossified, and to make sure that the current generation of talented people could amass wealth too.
The modern income tax was created in 1909 as part of an attempt to clear the way for prohibition- a significant part of the Federal budget was paid for with alcohol taxes, and they needed to replace that hole in the budget[1]. For the first three decades it hit only a tiny percentage of the richest, until World War Two when it was expanded and covered a greater percentage of the population, as the Federal government massively expanded and needed more money to pay for its massive size[2].
But those were all the results of political choices, and taxing the dead makes just as much sense.
[1]: Similarly, women's suffrage was also, at least in the US, largely a proxy battle over prohibition- it seems to have been a widely held assumption of everyone in politics in 1910 that as soon as women's suffrage was achieved prohibition would follow immediately afterwards (in fact, prohibition passed two years before women's suffrage). This is why the largest anti-suffrage organization had as its honorary chairwoman Mrs. Adolphus Busch, matriarch of the Budweiser fortune.
[2]: Adam Tooze's book _The Deluge_ has as its basic thesis that the US Government was too small, and had too limited state capacity, which was a major cause of all of the problems of the 1920's and 1930's.
Why not? If someone owes a bunch of taxes when they die, their estate should still be on the hook for it. I don't see any reason that money owed to the government should go to someone's heirs instead just because they happened to die at a specific time
but the money wasn't owed - because the gains were never realized, so the person (who died) never got to enjoy the consumption of that money, so therefore, it doesn't seem fair to take tax from somebody who would not be alive to defend themselves from it.
The heir receiving inheritance should get taxed - on the whole value (B in the OP's nomenclature). But the heir should not have to also pay B-A capital gains, which is a tax that would've been levied on the now dead, had they decided to sell instead of dying.
When someone dies, it's necessary to file a tax return for them, if you're going to probate. The taxes need to be paid for that person, from the assets. So, yes, the norm is to tax the dead.
The estate tax is almost always double taxation in general. If you just save up money from working and then you die, you'll have paid income tax on that money, then you'll be taxed again on that same money under the estate tax. If you invested it and realized capital gains, you'll pay capital gains tax on those gains, then you'll be taxed on those same gains again under the estate tax. Unrealized capital gains are the exception and not the rule here.
There's nothing fundamentally wrong with "double taxation," no rule that says every dollar must be taxed exactly (or at most) once. Sales tax is also "double taxation," for example. It's a useful heuristic for determine what should and shouldn't be deductible from a particular tax base but it's not a hard-and-fast rule.
Isn't double taxation when a tax applies on top of another tax? I think some people are trying to co-opt what it means to apply the "bad" reputation of double taxation to other things.
My own country has a famous issue with double taxation as I know it: diesel/gasoline have a specific tax and then VAT is calculated on top of original_price * gas_tax, instead of the original price.
So if the gas tax goes up 1% we end up paying more than 1% because it also the increases the value of the VAT.
I was going to mention sales tax, but many other taxes are also double taxation I think like property tax or gas tax or whatever is not income tax since you will pay for them with whatever you have left after paying for income tax.
Discussing the estate tax without mentioning how few people are even subject to it is seriously misleading, even if you're not intending to be (and I don't think you are).
I need to read more into that. If true, the cost basis should only be stepped up such that it accounts for the estate tax.
I'd prefer some simpler overall approach though. Removing step up in cost basis alone obviates the need for an estate tax, as eventually assets would be sold and tax revenue generated.
But important to do some research into how often inherited assets are kept permanently and gains never realized (thus tax never paid).
Just on gut instinct, I would guess most who inherit wealth eventually sell off any assets. I recall it tends to be that most accumulated wealth is lost by the third generation.
>When a person dies, their assets could be subject to estate taxes and inheritance taxes, depending on where they lived and how much they were worth. While the threat of estate taxes and inheritance taxes does exist, in reality, the vast majority of estates are too small to be charged a federal estate tax—which, as of 2021, applies only if the assets of the deceased person are worth $11.70 million or more
Actually most billionaires manage to reshuffle their assets to that their estate, such as it is, is under the limit by the time they die. The main people hit by it are those holding large amounts of valuable land, and there are very few of them.
Almost all mentions of the estate tax in this thread has been generic whining about the fact that there is an estate tax. For almost all US persons, there is no estate tax.
> Actually most billionaires manage to reshuffle their assets
I was talking to some people sufficiently wealthy that this is a concern, and their point is that the only reason some don't transfer their assets like this is fear of their own children. Unless you really are a farmer, or small business owner, the estate tax is completely optional if you trust your kids.
In 2019, there were only 2,570 estate taxes filed.
> Almost all mentions of the estate tax in this thread has been generic whining about the fact that there is an estate tax
There is also whining among people that they need to spend so much on accountants and lawyers to avoid what is essentially a completely bypassable tax.
So you can see how socially it is not a good use of our human capital to create this enormous tax avoidance industry, and how it would be much better to pass laws that didn't need to do things like value privately held businesses or artwork in order to determine your tax liability.
> I mean, c'mon, there's a gigantic tax avoidance industry just for regular income tax.
Because we have an extremely complex tax code.
But seriously, eliminate all corporate taxes and replace that with a 10% VAT.
Treat all income the same -- I don't care whether it's a long term capital gain, or a meteor filled with gold crashing into your yard, don't distinguish at all. Put it all into a single bucket, get one number, look that up in a progressive rate table. Pay a percentage. No deductions of any kind for anything. Not for mortgage, not for kids, not for school, not for charity, not for solar panels, etc. But only tax income, not assets.
The correct answer in my opinion has nothing to do with corporate taxation. The US government for some reason(s) (for another day) is almost completely unwilling to simply redistribute money to fund things it decides are worthy goals. Instead it creates tax credits and deductions that are supposed to do the same thing (at least for "the worthy").
We need to stop using tax code to implement policy. Taxes should be taxes, and if the government decides to pay people to encourage them to install solar PV/have children/buy new cars/invest in bitcoin/whatever, then the government should send them a check to do so.
So we're mostly in violent agreement, except that if corporations have any of the rights of people (and likewise, if people can somehow claim to be corporations), then I want them taxed just like people.
Yeah, I agree on the households. The point about corporate taxes is we have so many loopholes. Historically, nations adopted a VAT because it's great at squashing tax-avoidance, as it encourages snitching. Basically you report you paid someone X, and then they have to pay the VAT instead of you. So it's a very clean and elegant solution to dealing with the problem of corporate accounting and tax avoidance.
In terms of treating a corporation the same as a household -- so that it pays taxes on all revenue, the problem is the economic distortions. There are just some businesses - like grocery stores -- that have high turnover and low margins. Other businesses have low turnover and high margins. And the tax code should not really penalize one at the expense of another. E.g. groceries just don't last, they have to be sold quickly. Furniture lasts a while. The reality of that natural difference trumps any appeals to logical symmetry in treating corporations the same as households.
Except it's super easy to cheat on the left hand side, but hard to cheat on the right. VAT taxes get paid, payroll taxes get mostly paid, but corporate profit taxes - not so much.
Unfortunately most progressives don't understand this point and keep thinking that corporate profit taxes are good while VATs are bad, and they are kinda confused about payroll taxes.
Then you try to tell them what matters is tax incidence and their heads explode.
If you could remove estate tax and cover by removing step up in cost basis, is probably preferable (but contingent on assets eventually getting sold, requires some research)
The figure is $2,193,000 for Washington State. Considering that even starter houses are over a million bucks here, I bet that sweeps in quite a bit more than "nobody".
WA state has a population of about 8M. Its citizens decided in 1981 to switch from an inheritance tax to an estate tax.
This citizen-driven state law affects slightly more than 2% of the US population, in theory.
In fact, median household income for WA in 2019 was about $78k, median household net worth in 2019 was about $400k, and median family net worth in WA in 2021 was $865k.
So in reality, even within WA state, almost nobody is paying the state estate tax. Here's the Seattle Times from 2019 on the incongruities in state wealth distribution. But notice that even in their numbers, home owner median net worth is still only $900k, less than half the state's estate tax threshold.
It seems likely that this number has increased since 2006. But by how much?
The same report noted total estate tax revenue at $100M. Adjusting for inflation, and using the total revenue number from 2019 ($297M), it would seem that total revenue has just about doubled. If we make the egalitarian but hardly realistic assumption that the gain in total revenue number has been driven by an equally distributed gain in the value of estates, then it seems that a reasonable back of the envelope guestimate is that in 2019 or thereabouts, roughly 1% of annual deaths trigger estate tax liability.
[ EDIT: in addition, this page from the WA OFM seems to show that whatever the revenue from the state estate tax, it is so low that it doesn't even get it's own category in a chart of state revenue sources:
It's not nobody, but it's a hell of a lot closer to "almost nobody" than "this is a government policy that significant numbers of ordinary people have to worry about".
[EDIT: this page from the WA OFM suggests a possibly notable increase for 2019-2021 estate tax revenue, among other increasing sources of revenue. It's not clear that the increase changes the accuracy of my final paragraph (pre-edit)
> - Tax capital gains >1m a year as regular income.
It sounds fair, but aren't lower capital gains taxes used to encourage investment? And if we get rid of that incentive on income > $1 million (at least, can they still offset losses?), then would that lead to some adverse consequence (like much lower investment overall as direct income generation becomes preferred at that point)?
I would guess not much reduction in investment. If you have 100m dollars, there's only a limited number of places you can put it. What are you proposing re: direct income generation?
It will lead to reduced liquidity though. E.g. holders of assets are likely to sell less frequently to avoid the higher tax burden.
If you move money from one stock market position to an other do you realize your gains? If not, then said investors can simply dump their gains into small new companies that are on the stock market. (Plus see SPACs.)
> Why should capital gains get favorable tax treatment over income
My take on this is that the capital gain was not actually generated all in one year, but by taxing it as ordinary income, you are putting it into a higher bracket as though it were all generated in one year.
As an example, say your father builds a successful company, and runs it well for 40 years before selling it for $10 million and retiring. By taxing the entire $10 million in one tax year, almost all of it is in the highest tax bracket, which is anything above $500,000 for single filers. But the actual average amount earned per year is only $250,000, which doesn’t reach the highest tax bracket at all.
There are ways to balance this, of course, e.g. if you did exactly what I did in my example, and applied the income tax bracket based on the average gain per year of the securities sold. Something like that would still take care of billionaires “paying their fair share,” since you would have to divide by a lot of years to get billions of dollars in gains into a lower tax bracket.
It's in a higher bracket but you're also deferring paying. Given the choice of paying $1 of tax today or paying $N of tax later, that $1 of deferred tax at a 7.18% return is worth $2 in 10 years, $4 in 20 years and $16 in 40 years.
At a 6% rate of return and a 25% tax rate, after 40 years, even a 100% deferred tax rate is financially preferable to a 25% immediate tax rate, ie: I make more from the interest on my deferred tax than on my entire principle.
The SALT deduction benefits people in high tax states which happen to also be states where democrats hold political power. Many of them ran on restoring the SALT deduction. It benefits states that have high tax rates not exclusively 'wealthy' home owners.
There are ~1T in capital gains realized every year, roughly.
If you increase long term rate from 20%, to roughly 40% (top income rate), you'll generate roughly 200B a year in additional revenue. Of course changes in tax law will alter behavior, but we can say likely 100-150B+ per year. We can assume the large majority of these gains are from those above the 1m threshold.
Facebook is doing ~60B in buybacks this year. Taxing that at 20% nets 12B a year in revenue from Facebook alone. Dollar amount of total market buybacks is much higher, obviously. So we can say this likely generates 100B+ per year.
SALT deduction alone costs 100B/year to reinstate
So how does 300-450B a year not cover a 1.5T spending bill over 10 years?
What logic are you using to assert this isn't sufficient? Or are you just writing it off without any research?
You need to start putting realistic numbers. First off, if you double the tax rate on capital gains you'll see a dramatic change in behavior. You're not going to capture 75% of the expected, maybe half that. Instead of companies issuing equity, they'll just issue debt instead if it has clear tax advantages for investors.
Stock buy backs will end, they'll just pay it out as dividends instead. So $0.
SALT deduction has already been capped, no change there.
It's like the wealth tax in France that they expected would bring in billions brought in a few percentage of that.
I explicitly stated in my response that behavior would change in response to tax policy changes. Why state that as if I didn't lead with that?
There's 0 chance that capital gains will drop from 1T to much less than 500B, or that buybacks go to 0. You think people will suddenly never sell their assets because the tax rate is higher?
Dividends are already taxed at 20% for most people, yet companies still pay dividends. So why wouldn't they do buybacks at a 20% tax rate?
Even if you cut projections in half, it's more than enough to fund.
And it seems like you're not aware of the legislation. The budget bill brings back the SALT deduction, which will reduce tax revenue by 100B/year.
That single provision alone is almost enough to fully fund the (pared down) bill.
Buybacks would absolutely go to 0. If a company has the option to return 100% of their net income through dividends or 80% of their net income through buybacks, why on earth would they do buybacks?
US has the same top marginal dividend and cap gains rate so you'd make dividends much more tax efficient as a way to return money to investors [0].
Qualified dividends are taxed as long term capital gains, which is 20% for most. So if you have a 10% buyback tax, they are still more tax efficient than dividends. A 20% buyback tax puts them roughly at par.
Dividends are "double taxed" today and buybacks are not.
Not sure where you got your information, but it's wrong. Your source confirms what I'm saying, so maybe try reading it again.
No it does not because the person who they buy the stock back from has to pay cap gains still. The wiki page even has an example of how a dividend effectively reduces the shares price whereas buybacks effectively transfer the money into the share price which raises it over time proportionally and you will have to pay cap gains on it when you do sell.
They pay the capital gain at some point, but the most wealthy tend to never sell. They tend to take loans against their assets and hold in perpetuity.
I agree that raising the value of the share leads to a deferred taxable event, just a question of whether that deferral is permanent or not.
Presumably it would be realized at some point.
There is also a compounding effect to deferring gains, which leads to higher wealth concentration. e.g. you make gains on the portion of your investment that would be taxed, because dont owe the tax until you sell.
Money will shift from capital gains to other investments. Same with buybacks. I mean, that's why company's do buybacks today, they are tax advantaged.
And I don't get why you'd tax stock buyback. That's a key way company's control their equity. Take $10B to buy $10B of their own stock and you'd make them pay $2B in taxes? Really?
Why tax anything? The free market always works better without taxes altering behaviors.
The reason you tax buybacks is because you presumably care about wealth inequality. Buybacks by and large are mechanisms to increase the wealth of shareholders in a tax deferred manner. Dividends are not tax deferred.
Ideally legislation would differentiate between "operational buybacks" where the buyback is actually justified by fundamentals and "indiscriminate buybacks" where the goal is to increase the value of the equity regardless of efficiency of the buyback. If a company has ROIC of 20% and a cashflow yield of 3%, it's pretty obvious that the buyback is indiscriminate and not rooted in any sense of the best allocation of capital.
Of course impossible to differentiate these two things in legislation. But we can say 90% of the money allocated towards buybacks has nothing to do with operational efficiency, and acts more as a tax deferred transfer of wealth to shareholders. From the governments perspective, encouraging dividends over buybacks makes a lot of sense.
I am confused as to how you would tax share buybacks.
Also, would you give a credit for share issuance?
1) if company A issues 100 shares in January, and buys back 150 shares in February, then would company A accrue a tax liability on 50 shares, or 150 shares, and how does A's tax liability change? What rate does the liability accrue at? What if it's more than 12 months -- can you bank this somehow?
2) if company A lends $100 to company B, and company B buys $100 worth of company A's shares, then would company B incur a tax liability, and if so, what is the liability?
3) Is this a general tax liability incurred when a company buys shares of any other company?
4) Is this a general tax liability incurred whan a company buys other instruments -- preferred stock, long term debt, etc, of any other company?
5) Does this tax on corporate purchase of financial assets also extend to banks or is it just the non-financial sector?
6) What if a hedge fund buys shares in company A, do they incur a tax liability?
7) Is a company allowed to retire its own debt prematurely under this plan without incurring a tax liability?
8) Can a company do a repo or reverse-repo of its own shares without incurring a tax liability?
9) If instead of buying back its own shares, a company were to buy gold or shares in another company, would that trigger a tax liability?
Another problem with taxing unrealized capital gains is that if the gov’t wants to collect more tax revenue, they could print money, inflate the dollar value of assets, then tax the gains.
Even if I was to buy that there's some theoretical argument that no dollar may be taxed more than once (which I don't), the income isn't the capital gains. It's not related in any way to the capital gains. A corporation may have enormous profits, and zero capital gains. It may have enormous capital gains, and zero profits. The capital gain has not been previously taxed.
This is a deeply simplistic reading of stock trading.
People who buy (or used to buy) "blue chip" stocks in the hope of collecting a nice monthly dividend payout certainly see things the way you're describing.
But there are plenty of people who buy stock because they believe the stock price will increase for reasons that may or may not include profits. The idea that "gains in value of a company ... comes from profit" is some sort of glorified 1850-1970s view of how stock prices vary. Once we allowed for derivatives, amongst other things, this sort of simplistic approach to stock trading has become more and more of an anachronism.
To use amzn as an example, though they are hardly unique, lots of people bought amzn stock because they belived that other people believed that the stock price would increase.
We have entire sub-sectors of stock trading that use high level math and leading edge technology (and or day-trader gut feelings) to try to earn from fluctuations in stock pricing that are best a derivative of profits, but more typically 3rd order effects.
Once again, if the stock price outpaces profits, it is because the investors are expecting FUTURE profits.
You appear to believe that this is some anachronism. It is not. The people who believe it is not based on (expected future) profits are in for a rude awakening. If the expected future profits don't materialize, the stock tanks.
Why do you think TSLA jumped when Hertz ordered a ton of Teslas? It wasn't based on the value of that deal, it was based on the EXPECTED FUTURE PROFITS from the legitimizing effect on Tesla sales from Hertz' vote of confidence. People expect other rental fleets to now be buying Teslas. And those expected future profits just got priced in to the stock.
Of course, they could guess wrong. But the two numbers, stock valuation and profits, will inevitably converge.
ANY news that affects future profits is going to affect the stock price. All those mathematical models are just attempts to predict just what the magnitude of those effects will be.
Not realizing this is like looking at the thermometer today and drawing a conclusion about climate change.
> Once again, if the stock price outpaces profits, it is because the investors are expecting FUTURE profits.
This is just false. We live in a world where stock trading occurs based on at least 3rd order derivatives. My belief about her belief about his belief can drive me buying or selling stock.
I don't have to believe anything about future profits, I only have to believe that you believe that somebody else believes something about future profits.
But I don't even have to believe that. I can simply have an expectation that I can surf the volatility of a given stock, without regard for its "underlying causes", and make a profit doing so.
You don't actually think all those hedge fund quants do is some fancy computation of expected future profit, do you?
> The people who believe it is not based on (expected future) profits are in for a rude awakening. If the expected future profits don't materialize, the stock tanks.
The people who are no longer playing the simplistic game are already gone when that happens.
BTW, hedge fund trading is all about finding an edge based on:
1. executing a trade on breaking news ahead of the other guys
2. finding an unknown correlation between Event A and the stock price
The thing about (2) is once someone does find a correlation, that knowledge spreads out to the other hedge fundies, negating the advantage.
And then it's back to future profits. It always goes back to future profits. Bill Gates was asked once if he followed MSFT. He replied that he didn't, he just focused on making Microsoft profits and MSFT took care of itself.
I also remember a CEO who said at a company meeting that he'd adjusted the books to "what Wall Street was looking for". The stock promptly tanked. WS wants profits, not manipulation.
P.S. did you see what MSFT did yesterday? It jumped up quite a bit. Because of profits beating expectations. Not because of a 3rd derivative.
Despite having a good chunk of my "retirement" money in the market, I try to avoid paying much attention to it's day to day issues. So no, I did not see what happened to MSFT.
But look, the point is that there are two fundamental reasons to buy a stock. One is to collect dividends paid to stock owners (so called "blue chip" stocks). The other is because you believe the price of the stock will rise. (For the big players, there's also the issue of corporate control, but that's not a factor for most investors, even many institutional ones)
There are many reasons why the price of a stock will rise. One of them could be more people wanting in on the dividend payout, and them being willing to pay (a bit) more than the current price. That could happen due to demographic changes (ie. shifts in the number of people who want dividend paying stocks), it could happen due to a change in the expectation of what those dividends will be (as in your MSFT example).
But it can also (and demonstrably has) happen(ed) that the price rises because derivative beliefs about the likely future price. And that's precisely what happened in the case of amzn and dozens if not hundreds of tech startups over decades: there was never any profit (and in some cases there never would be any profit), but there was a belief about either:
1. that future profit would be above a certain level
2. the number of people who believed in 1, and so would drive the price up
3. the number of people who believed in 2, and so would drive the price up
4. [ repeat as deep as you think feasible ]
As for the Gates anecdote, I prefer the stories from German CEOs who express wonderment at the idea that anyone would pay attention to quarterly results.
Again, it all boils down to expectation of future profit.
It makes no difference (except for tax purposes) if the dividends are paid to shareholders, or if they are retained and the stock price goes up by the amount of the dividend. As the differing tax treatment of capital gains and dividends changes, companies change their dividend payouts to match.
> But it can also (and demonstrably has) happen(ed) that the price rises because derivative beliefs about the likely future price. And that's precisely what happened in the case of amzn
The future price reflects expectation of profit. Amazon actually creates quite a bit of profit, they just plow it back into the business.
> The value of a corporation is inevitably linked to its profits.
> Again, it all boils down to expectation of future profit.
Maybe you feel these are equivalent statements. I don't. I think they are fundamentally different. People's expectations about a company's future profitability are, to me, entirely different from a company's actual profit. Blue chip companies have stock values that are tightly tied to their actual profit, unless there's some reason to think they might be on the verge of some sort of breakthrough that will make the stock price climb dramatically (because of anticipated future growth). Non-blue-chips have stock values that have a substantial component derived entirely from 1st, 2nd or 3rd order expectations about profit, and this can move stock prices dramatically even though there is no actual change in the company's profitability.
So, if you had only said "it all boils down to (1st, 2nd or 3rd order expectation of future profit", I'd agree with you. But you started by saying "the value of a corporation is linked to its profits", and I can't agree with that except for blue chip (type) companies.
What do you imagine it is based on? Collector value? The position of Mars in the sky?
> I can surf the volatility of a given stock
You can make a profit in Vegas with your system, too, but you'll lose in the long run because the math is inevitable.
> You don't actually think all those hedge fund quants do is some fancy computation of expected future profit, do you?
Hedge fund long term results struggle to match the S&P 500. The owners of the hedge fund, however, do far better than their customers. All those commissions, fees, percentages and loads.
I put my money where my mouth is, and it's not in hedge funds.
- Tax capital gains >1m a year as regular income.
- Fix loopholes that allow for equity as collateral for perpetual loans without ever selling the underlying.
- Remove step up in cost basis on inheriting assets.
- Tax stock buybacks at same level as dividends.
- Don't bring back SALT deduction.
Pretty easy to justify. Why should capital gains get favorable tax treatment over income, especially for wealthy who have this as a primary income source? Overall, proportion of assets allocated to investment capital would not dip due to change in tax, where else would they put the money?
Buybacks are effectively a technique to consolidate wealth primarily for the CEO and board of a company, who are paid primarily in equity comp. Very few companies do buybacks for legitimate operational reasons, like purchasing stock when it's undervalued to reduce operational expenses re dividends. It's mostly a buy at any price to juice valuations. I'm not against companies returning money to shareholders, but buybacks shouldn't be tax advantaged vs dividends.
SALT is a direct handout to wealthy homeowners. The fact that this is even in the spending bill shows how far the narrative of fixing wealth inequality has deviated from the actual legislation.
I suspect Congress doesn't do these things because it would actually impact their own finances. And of course they need unilateral agreement on any approach.