43.4% tax rate on long term capital gains for high income individuals-Biden plan

[Investor20]

I watch Shark Tank regularly.

 

I believe such innovativeness and enterpreneurship is very important for not only employment generation but new and innovative products or services to be introduced in market.

 

Now we are telling these investors and enterpreneurs that there will be 28% tax on profit and 44.3% long term capital gains when they cash out, in a situation the failure rate in a start up is very high.

 

28+44.3 = 72.3%.  Will there be anything left for inheritance with this type of taxes on startups?

 

Do you think highly driven people will let their money sit in a savings account and let inflation dwindle their relative wealth away because they're paying more in taxes?

 

    9 out of 10 startups fail (source: Startup Genome - the 2019 report claims 11 out of 12 fail).

    7.5 out of 10 venture-backed startups fail (source: Shikhar Ghosh).

    2 out of 10 new businesses fail in the first year of operations (source: Bureau of Labor).

https://www.failory.com/blog/startup-failure-rate

 

If a person such as in Shark Tank invests in 10 companies and looses in 9 ideas/products/services and then the successful profitable idea/product/service, you pay 28% corporate tax + 44.3% capital gains (total 72.3%), it might be better to just invest that money and effort in Berkshire or mutual fund and go and work.

 

It is the start ups that really come up with new ideas and innovative products/services and it might not be the investor/enterpreneur who is loosing but it is the society.

 

 

[stahleyp]

I watch Shark Tank regularly.

 

I believe such innovativeness and enterpreneurship is very important for not only employment generation but new and innovative products or services to be introduced in market.

 

Now we are telling these investors and enterpreneurs that there will be 28% tax on profit and 44.3% long term capital gains when they cash out, in a situation the failure rate in a start up is very high.

 

28+44.3 = 72.3%.  Will there be anything left for inheritance with this type of taxes on startups?

 

Do you think highly driven people will let their money sit in a savings account and let inflation dwindle their relative wealth away because they're paying more in taxes?

 

    9 out of 10 startups fail (source: Startup Genome - the 2019 report claims 11 out of 12 fail).

    7.5 out of 10 venture-backed startups fail (source: Shikhar Ghosh).

    2 out of 10 new businesses fail in the first year of operations (source: Bureau of Labor).

https://www.failory.com/blog/startup-failure-rate

 

If a person such as in Shark Tank invests in 10 companies and looses in 9 companies and then the successful company, you pay 28% corporate tax + 44.3% capital gains (total 72.3%), it might be better to just invest that money in Berkshire or mutual fund and go and work.

 

It is the start ups that really come up with new ideas and innovative products/services and it might not be the investor/enterpreneur who is loosing but it is the society.

 

Wouldn't the person be taxed the same regardless if they invested in the start up, Berkshire or the fund?

[rb]

I watch Shark Tank regularly.

 

I believe such innovativeness and enterpreneurship is very important for not only employment generation but new and innovative products or services to be introduced in market.

 

Now we are telling these investors and enterpreneurs that there will be 28% tax on profit and 44.3% long term capital gains when they cash out, in a situation the failure rate in a start up is very high.

 

28+44.3 = 72.3%.  Will there be anything left for inheritance with this type of taxes on startups?

 

Do you think highly driven people will let their money sit in a savings account and let inflation dwindle their relative wealth away because they're paying more in taxes?

 

    9 out of 10 startups fail (source: Startup Genome - the 2019 report claims 11 out of 12 fail).

    7.5 out of 10 venture-backed startups fail (source: Shikhar Ghosh).

    2 out of 10 new businesses fail in the first year of operations (source: Bureau of Labor).

https://www.failory.com/blog/startup-failure-rate

 

If a person such as in Shark Tank invests in 10 companies and looses in 9 companies and then the successful company, you pay 28% corporate tax + 44.3% capital gains (total 72.3%), it might be better to just invest that money in Berkshire or mutual fund and go and work.

 

It is the start ups that really come up with new ideas and innovative products/services and it might not be the investor/enterpreneur who is loosing but it is the society.

Are you aware that you don't know how to calculate taxes? 28%+44.3% does not equal 72.3% as you keep saying.

[Investor20]

I watch Shark Tank regularly.

 

I believe such innovativeness and enterpreneurship is very important for not only employment generation but new and innovative products or services to be introduced in market.

 

Now we are telling these investors and enterpreneurs that there will be 28% tax on profit and 44.3% long term capital gains when they cash out, in a situation the failure rate in a start up is very high.

 

28+44.3 = 72.3%.  Will there be anything left for inheritance with this type of taxes on startups?

 

Do you think highly driven people will let their money sit in a savings account and let inflation dwindle their relative wealth away because they're paying more in taxes?

 

    9 out of 10 startups fail (source: Startup Genome - the 2019 report claims 11 out of 12 fail).

    7.5 out of 10 venture-backed startups fail (source: Shikhar Ghosh).

    2 out of 10 new businesses fail in the first year of operations (source: Bureau of Labor).

https://www.failory.com/blog/startup-failure-rate

 

If a person such as in Shark Tank invests in 10 companies and looses in 9 companies and then the successful company, you pay 28% corporate tax + 44.3% capital gains (total 72.3%), it might be better to just invest that money in Berkshire or mutual fund and go and work.

 

It is the start ups that really come up with new ideas and innovative products/services and it might not be the investor/enterpreneur who is loosing but it is the society.

 

Wouldn't the person be taxed the same regardless if they invested in the start up, Berkshire or the fund?

No..for successful product, I get the money as capital gains in one year or short period - may be after 20 years of effort after selling it to may be a Buffett. Take for example, you have dry cleaning shop and that shop appreciated considerably and when you sell, that year you make a lot and get into 1 million, while if you work, you may be making 200K over 20 years - lot more money but spread out over longer period.

 

For berkshire or mutual fund (even better if I put it in 401k or IRA),  I dont have to cash it at once.

[rb]

I watch Shark Tank regularly.

 

I believe such innovativeness and enterpreneurship is very important for not only employment generation but new and innovative products or services to be introduced in market.

 

Now we are telling these investors and enterpreneurs that there will be 28% tax on profit and 44.3% long term capital gains when they cash out, in a situation the failure rate in a start up is very high.

 

28+44.3 = 72.3%.  Will there be anything left for inheritance with this type of taxes on startups?

 

Do you think highly driven people will let their money sit in a savings account and let inflation dwindle their relative wealth away because they're paying more in taxes?

 

    9 out of 10 startups fail (source: Startup Genome - the 2019 report claims 11 out of 12 fail).

    7.5 out of 10 venture-backed startups fail (source: Shikhar Ghosh).

    2 out of 10 new businesses fail in the first year of operations (source: Bureau of Labor).

https://www.failory.com/blog/startup-failure-rate

 

If a person such as in Shark Tank invests in 10 companies and looses in 9 companies and then the successful company, you pay 28% corporate tax + 44.3% capital gains (total 72.3%), it might be better to just invest that money in Berkshire or mutual fund and go and work.

 

It is the start ups that really come up with new ideas and innovative products/services and it might not be the investor/enterpreneur who is loosing but it is the society.

 

Wouldn't the person be taxed the same regardless if they invested in the start up, Berkshire or the fund?

No..for successful product, I get the money as capital gains in one year or short period - may be after 20 years of effort after selling it to may be a Buffett. Take for example, you have land and that land appreciated considerably and when you sell, that year you make a lot and get into 1 million, while if you work, you may be making 200K over 20 years - lot more money but spread out over longer period.

 

For berkshire or mutual fund (even better if I put it in 401k or IRA),  I dont have to cash it at once.

Any reason why your company can't be owned by an offshore trust which then sprinkles the money to you @990k per year?

[stahleyp]

I watch Shark Tank regularly.

 

I believe such innovativeness and enterpreneurship is very important for not only employment generation but new and innovative products or services to be introduced in market.

 

Now we are telling these investors and enterpreneurs that there will be 28% tax on profit and 44.3% long term capital gains when they cash out, in a situation the failure rate in a start up is very high.

 

28+44.3 = 72.3%.  Will there be anything left for inheritance with this type of taxes on startups?

 

Do you think highly driven people will let their money sit in a savings account and let inflation dwindle their relative wealth away because they're paying more in taxes?

 

    9 out of 10 startups fail (source: Startup Genome - the 2019 report claims 11 out of 12 fail).

    7.5 out of 10 venture-backed startups fail (source: Shikhar Ghosh).

    2 out of 10 new businesses fail in the first year of operations (source: Bureau of Labor).

https://www.failory.com/blog/startup-failure-rate

 

If a person such as in Shark Tank invests in 10 companies and looses in 9 companies and then the successful company, you pay 28% corporate tax + 44.3% capital gains (total 72.3%), it might be better to just invest that money in Berkshire or mutual fund and go and work.

 

It is the start ups that really come up with new ideas and innovative products/services and it might not be the investor/enterpreneur who is loosing but it is the society.

 

Wouldn't the person be taxed the same regardless if they invested in the start up, Berkshire or the fund?

No..for successful product, I get the money as capital gains in one year or short period - may be after 20 years of effort after selling it to may be a Buffett. Take for example, you have land and that land appreciated considerably and when you sell, that year you make a lot and get into 1 million, while if you work, you may be making 200K over 20 years - lot more money but spread out over longer period.

 

For berkshire or mutual fund (even better if I put it in 401k or IRA),  I dont have to cash it at once.

 

That doesn't really answer my question. Wouldn't they be taxed the same at the time of sale? I understand you can defer taxes and all but I'm looking at the actually taxation.

[LC]

rb, I was waiting for someone to call that out :D

[rb]

Basic math is hard!

[Cardboard]

Yeah just like it seems so hard for someone who claims to be so smart that trending towards 100% taxation leads to $0 government revenue.

 

Cardboard

[Investor20]

Yeah just like it seems so hard for someone who claims to be so smart that trending towards 100% taxation leads to $0 government revenue.

 

Cardboard

 

I am only including the federal taxes..not states taxes, not unemployment taxes, not social security taxes.....Yes Cardboard it is 100% taxes leading to zero revenue math.

[Investor20]

I watch Shark Tank regularly.

 

I believe such innovativeness and enterpreneurship is very important for not only employment generation but new and innovative products or services to be introduced in market.

 

Now we are telling these investors and enterpreneurs that there will be 28% tax on profit and 44.3% long term capital gains when they cash out, in a situation the failure rate in a start up is very high.

 

28+44.3 = 72.3%.  Will there be anything left for inheritance with this type of taxes on startups?

 

Do you think highly driven people will let their money sit in a savings account and let inflation dwindle their relative wealth away because they're paying more in taxes?

 

    9 out of 10 startups fail (source: Startup Genome - the 2019 report claims 11 out of 12 fail).

    7.5 out of 10 venture-backed startups fail (source: Shikhar Ghosh).

    2 out of 10 new businesses fail in the first year of operations (source: Bureau of Labor).

https://www.failory.com/blog/startup-failure-rate

 

If a person such as in Shark Tank invests in 10 companies and looses in 9 companies and then the successful company, you pay 28% corporate tax + 44.3% capital gains (total 72.3%), it might be better to just invest that money in Berkshire or mutual fund and go and work.

 

It is the start ups that really come up with new ideas and innovative products/services and it might not be the investor/enterpreneur who is loosing but it is the society.

 

Wouldn't the person be taxed the same regardless if they invested in the start up, Berkshire or the fund?

No..for successful product, I get the money as capital gains in one year or short period - may be after 20 years of effort after selling it to may be a Buffett. Take for example, you have land and that land appreciated considerably and when you sell, that year you make a lot and get into 1 million, while if you work, you may be making 200K over 20 years - lot more money but spread out over longer period.

 

For berkshire or mutual fund (even better if I put it in 401k or IRA),  I dont have to cash it at once.

 

That doesn't really answer my question. Wouldn't they be taxed the same at the time of sale? I understand you can defer taxes and all but I'm looking at the actually taxation.

 

The way I understand this tax works, the year you file if your income exceeds million dollars, then this 44.3% long term capital gains taxes.

 

You would be just fine if you make 900K every year of your life, but would be in trouble if you make 1.1 million in one year of your life.

[Investor20]

One area we have not discussed is the inflation effect on long term capital gains.

 

To get a sense of what part of gains is due to inflation I used below calculator.

 

https://dqydj.com/sp-500-return-calculator/

 

For past 20 years (Sep 2000 to Sep 2020) for

 

Total S&P 500 Return (Dividends Reinvested) without inflation adjustment: 235%

Total S&P 500 Return (Dividends Reinvested) with inflation adjustment: 124%

 

They say inflation is a hiden tax.  This is not even considered in the previous discussion.

 

When they say 42.3% tax, the tax is on the 235% gain before inflation, not 124% real gain after inflation adjustment.

[rb]

This is an area that has been discussed a lot actually

[Investor20]

This is an area that has been discussed a lot actually

 

With reference to 42.3% long term capital gains tax (plus any state taxes)? Please provide a link. I would like to read. Thanks

[Cigarbutt]

This is an area that has been discussed a lot actually

With reference to 42.3% long term capital gains tax (plus any state taxes)? Please provide a link. I would like to read. Thanks

https://fas.org/sgp/crs/misc/R45229.pdf

If the goal is to reduce the impact of taxation on long term capital gains, it may be more efficient to simply lower the tax rates on those gains.

[SharperDingaan]

One area we have not discussed is the inflation effect on long term capital gains.

 

To get a sense of what part of gains is due to inflation I used below calculator.

 

https://dqydj.com/sp-500-return-calculator/

 

For past 20 years (Sep 2000 to Sep 2020) for

 

Total S&P 500 Return (Dividends Reinvested) without inflation adjustment: 235%

Total S&P 500 Return (Dividends Reinvested) with inflation adjustment: 124%

 

They say inflation is a hiden tax.  This is not even considered in the previous discussion.

 

When they say 42.3% tax, the tax is on the 235% gain before inflation, not 124% real gain after inflation adjustment.

 

To use your own numbers, the 42.3% tax, just returns an investor back to the inflation adjusted equivalent.

235% * (1-.423 tax) = 136% - or about the 124% return with inflation adjustment. Point? The inflation tax is monetized when you sell.

 

The example suggests that the trailing 20-25 year S&P 500 gain before inflation is the benchmark to be beaten.

If your business is simply trading bits of paper - to get ahead, you must take on MORE risk than the S&P 500 Beta of 1.00.

Pretty hard to argue against.

 

SD

 

 

 

 

 

[Investor20]

One area we have not discussed is the inflation effect on long term capital gains.

 

To get a sense of what part of gains is due to inflation I used below calculator.

 

https://dqydj.com/sp-500-return-calculator/

 

For past 20 years (Sep 2000 to Sep 2020) for

 

Total S&P 500 Return (Dividends Reinvested) without inflation adjustment: 235%

Total S&P 500 Return (Dividends Reinvested) with inflation adjustment: 124%

 

They say inflation is a hiden tax.  This is not even considered in the previous discussion.

 

When they say 42.3% tax, the tax is on the 235% gain before inflation, not 124% real gain after inflation adjustment.

 

To use your own numbers, the 42.3% tax, just returns an investor back to the inflation adjusted equivalent.

235% * (1-.423 tax) = 136% - or about the 124% return with inflation adjustment. Point? The inflation tax is monetized when you sell.

 

The example suggests that the trailing 20-25 year S&P 500 gain before inflation is the benchmark to be beaten.

If your business is simply trading bits of paper - to get ahead, you must take on MORE risk than the S&P 500 Beta of 1.00.

Pretty hard to argue against.

 

SD

 

What do you mean monetized?  Monetized for govt?  Yes the government reducing the value of my money with inflation and then taxing it as a gain!

 

With 100$ invesment, after tax at 42% after 20 years, the net return is 136$ or 236$ total. This is not however real gain.

 

From US inflation calculator, 100$ in year 2000 is 150$ in year 2020.  So 136-50 = 86$ is your real gain after investing 100$ for 20 years.  While government got 100$ in taxes (not counting the corporate taxes, dividend taxes, state taxes)

 

You think that is a good game to be in?

 

 

[SharperDingaan]

Every year until sale, inflation is an unrealized gain.

When you sell (upon death), you receive cash for the asset, and the unrealized PTD inflation gain became a realized gain (it monetized).

 

PTD monetary stimulus created the inflation. Upon death, the tax the government collected is passed back to the CB, which essentially repays the PTD monetary stimulus. Throughout your lifetime you benefited from the economic activity that the inflationary stimulus created - so YES, this is a good game to be in.

 

The reality of course is that the $ collected are NOT passed back to the CB, the CB essentially NETS it against the magnitude of the current GROSS monetary stimulus instead. Not the best but reasonably efficient, effective, and robust.

 

All else equal, when the working age population is growing (boomers, plus birth or immigration) - monetary deficits grow. When the working age population shrinks (Japan) - monetary surplus. Fiscal deficits get paid off from the cashflows that the investments (infrastructure) generate.

 

In accounting terms; think of fiscal debt as fixed costs, annual monetary deficits as variable costs, and annual GNP as revenue. As GNP includes inflation - change the inflation rate, and change both the level of break-even activity, and the level of unemployment.

 

SD