It’s not new, but it’s getting attention again: a proposed federal tax on every securities (stock and bond) transaction is being pushed by prominent members of Congress.
The proponents of this tax say it is intended to discourage high-frequency trading and won’t hurt the middle class. Since many, many middle class families have retirement accounts that are invested in stocks and bonds, either directly or through mutual funds, I have some questions:
Is the reinvestment of dividends inside retirement accounts going to be subject to the tax? If so, then middle class people are going to pay the tax.
Are transactions in U.S. Treasury securities going to be subject to the tax? If so, retirees who invest in those bonds will pay the tax. If not, that will skew the markets because Treasury securities will have a cost advantage.
I could think of more questions, but you get the idea. The simplistic notion that a tax on securities transactions will only hit fat cats and day traders is a lie, designed to gin up support for the tax among those who won’t think about how it will actually affect lots of people.
IT’S REALLY NO SURPRISE THAT THE TREASURY WON’T ALLOW “CONTRIBUTIONS” THAT GET STATE TAX CREDITS TO BE TREATED AS DEDUCTIBLE CHARITABLE CONTRIBUTIONS
The Treasury has issued final regulations shutting down the so-called “workarounds" that would let taxpayers deduct as charitable contributions payments that are really in satisfaction of local tax obligations. It really isn’t a surprise, is it? It’s based on a longstanding, and simple, principle: If you get something in return for a donation, that donation doesn’t qualify for an income tax deduction.
I’ll let you go to the post at the TaxProf blog to see what words I’m talking about.
As my friend Ed says: in any legal matter that involves math, lawyers who aren’t afraid of math have an advantage over those who are. Most legal matters involve at least some math.
You figure it out.
As I predicted, there has not been a peep from its proponent on how “mark-to-market” capital gains taxation would be implemented. It’s a stupid idea that deserves to be not just ignored, but outed as the idiocy that it is. I wonder what political advantage its proponent thought would be gained from its announcement.
You think the federal income tax is unfair? This is not how to fix that.
MY APRIL NEWSLETTER COVERS THIS TIMELY TOPIC: IF I DIDN’T FILE MY TAX RETURN ON TIME, WHAT EXCUSES WILL BE GOOD ENOUGH TO GET ME OUT OF PAYING PENALTIES AND INTEREST?
AS I PREDICTED, WE’RE STILL WAITING FOR ITS PROPONENT TO EXPLAIN HOW MARK-TO-MARKET TAXATION OF CAPITAL GAINS WOULD BE IMPLEMENTED
One argument that I have seen that supposedly supports this nutty idea is that gains can be compounded if they’re not taxed, which will increase the concentration of wealth among those with large holdings. The obvious fallacy in that argument is that the only way gains can be compounded is if they are reinvested. Reinvestment requires either liquidation or reinvestment of dividends. Liquidation and payment of dividends are taxable events. Nothing in this stupid proposal would change those fundamental principles.
YOU WANT SOME EXAMPLES OF WHAT A STUPID IDEA IT IS TO IMPOSE ANNUAL “MARK-TO-MARKET” TAXATION ON CAPITAL GAINS ?
An opinion column in the Knox News goes over just a few of the most obvious reasons why taxing capital gains annually based on the market value of capital assets would create tremendous problems. The columnist dismisses the idea as a class warfare scheme that will go nowhere. I hope the columnist is right.
I note that the announcement has received little attention since it was made earlier this month (just in time for tax day). I predict that the promised explanation of how the idea would actually work will not be forthcoming, or if it is provided, will be ignored.
I could give you example after example of how taxation of unrealized capital gains would be (a) ineffective in accomplishing the stated objective of its proponent to "ensure wealthy pay their fair share," and (b) harmful to the economic well-being of millions of ordinary (non-wealthy) Americans. I'll come back to it if this proposal goes anywhere, which it should not, and probably will not.
MORE BRILLIANT IDEAS FROM THE GENIUSES IN DC - THEY WANT TO DICTATE THE TERMS OF CORPORATE SHARE REPURCHASES
I wasn’t aware that some federal lawmakers have decided companies should be prohibited from buying back shares until the companies compensate all of their employees at the level that lawmakers deem appropriate. What a great idea! Now, why don’t those geniuses also just dictate what products companies can produce and set prices for which they can sell those products? At least one of them seems to think that these would in fact be appropriate exercises of our central government’s authority.
As an aside, the linked item suggests that a Republican senator has “criticized buybacks.” Here’s what that senator actually said:
At present, Wall Street rewards companies for engaging in stock buybacks, temporarily increasing their stock prices at the expense of productive investment. While companies should be free to buy their own stock, there should be no tax advantage for stock buybacks over other forms of capital allocation, as the deferral of capital-gains taxes currently allows.
One can agree with that statement without supporting the idea that the federal government should dictate when a company can repurchase its shares.
The contents of this blog, this web site, and any writings by me that are linked here, are all my personal commentary. None of it is intended to be legal advice for your situation.