Amy J,
When it comes to capital gains, I think it is more important to introduce indexing for inflation that doing rate tax cuts (unless you are talking about elimination of capital gains completely). This way, one would be paying tax only on real gains, instead of the current situation where taxpayers are paying taxes because of the Fed's failure to maintain price stability. The indexing is not a hot issue now, when the inflation is relatively under control, but IMO, it was one of the reasons the market was such a horrible place to leave your money in throughout the high inflation 70s.
I think indexing for inflation would help the startups, because the original investors may be in for 10 to 15 years before there are any real gains to realize, and even at modest 3%, the inflation over 15 years amounts to over 55% of the selling price.
So suppose you are selling $1,000,000 worth of stock, and the basis is negligable, you are paying taxes on $450,000 of real gains, and $550,000 on inflation. Indexing would eliminate taxation on the $550,000 completely, meaning that effectively, the tax bill would be only 45% of what it would be now (equivalent to more than 50% rate cut).
But obviously, there are political pressures, which dictate that a bullet point list of points is prepared. Each bullet point has either a price tag (if a new spending is proposed) or foregoing revenue, and indexing is a huge $ amount, while it is a bullet point that nobody really understands.
On paying / not paying dividends, I think there is a lot of arrogance and contempt for shareholder at high tech and hard driving companies (Enrons). The idea of the owners of the companies actually seing some of their earnings is something the high tech CEOs don't want to hear about. They want to play with the big bucks, all of the money. They don't want to share.
But it is probably a more fundamental than that. I think the basic idea is for a business to earn profit. The idea to go for growth / go for broke works in 1 out of 1,000 companies, doesn't for 999. Many of the 999 could still be in business if they paid more attention to fundamentals.
And in other words the go for broke approach is just a late 1990s schemes to separate the investors from their money, because a lot of the high tech start-ups generated very little real value. The high stock valuations were just the result of investors being duped.
If there is anything about the stimulus package related to stock owning (other than indexing), I think it should be a more effective way to deal with capital losses. That would benefit the high tech investors a lot more. For many, it may take more than 1 lifetime to recoup their losses at $3,000 per year per person or couple. BTW, this is another idea for a good tax cut. Why is the $3,000 limit the same for 2 married people as for one single person?
Joe
PS: does anyone have a link to a good summary of the latest Bush proposal in a raw form? All I have come across is a lot of articles where the info is "pre-digested" by some journalist. |
