Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Pastimes : Clown-Free Zone... sorry, no clowns allowed -- Ignore unavailable to you. Want to Upgrade?

To: GraceZ who wrote (108236)	6/12/2001 1:30:00 PM
From: flatsville	Read Replies (2) \| Respond to of 436258

>>>You are helping to illustrate my previous point which was that in a high tax environment capital winds up going into a money shuffle or tax shelters not productive assets.<<< Grace, not all tax shelters/preference are non productive (passive) assets though they can be. And if you go back and look at my post here's what I said "What determines whether or not people engage in tax avoidance or sheltering of income (legal) or in many cases tax evasion or outright cheating (illegal) is the opportunity created in each change of the tax code regardless of rates. IOW what doors does Congress leave open--" You were arguing it was high rates alone and that the "rich" wouldn't bother to shelter income if rates were low (which they were after TRA 86.) I pointed out they bothered very much when the opportunity was taken away and eventually succeeded in getting back those opportunities certain cases. Congress often leaves tax sheltering doors open for a reason as you noted, but not because as you stated "The passive loss tax shelters were set up and employed when marginal rates were high and inflation was high" and "which made real estate an attractive investment." It was not quite that generic nor an accident. This particular tax shelter was set up to produce very specific results which it did. The Reagan Admin and Congress felt this one had run its' course and was then producing "bad" results...for a variety of reasons. IMO the main reason was that Ronnie and Congress needed revenue they could tax. Trickle down wasn't working (by then I think Stockman had revealed what a scam it was,) Star Wars and other defense spending projects were getting very expensive and Congress wasn't buying this "we can't spend" B.S. >>>Real estate produces capital appreciation without attendant taxable income. So does holding stock long term.<<< IIRC those who engineered that tax change didn't look at stock ownership quite the same way as you stated above. The intent was to get people to hold stock and bonds which would produce taxable dividends and interest immediately and a capital gain on the back end instead of real estate which produced passive losses yearly and a capital gain on the back end. >>>'86 tax reform gave a considerable shove to people to unwind these types of shelters, but it also had a devastating effect on the inner cities which were full of residential investment real estate.<<< Agreed. They could have accomplished a move from "passive" to more "active" investment without the dislocation in older cities. I can think of several ways this could have been accomplished without pricking the real estate bubble and breaching the "thin brick line" in the inner city. However, I think this was a panic move on their collective part. >>>The real estate tax changes in '86 had a far worse effect on the poor in my city then they did on the rich who simply moved their money to other assets. The poor lost their homes and neighborhoods.<<< But think of all the wonderful entry level and low paying jobs you're so fond of that were created by the increased economic activity. As you yourself noted tax receipts post TRA '86 increased due to the rate reduction on the rich. What is good for the rich must be good for the poor, no? If families doubled or tripled up and each person worked 3 or 4 of those lousy jobs they could move to the suburbs. Don't people thrive on adversity? Losing your home through gentrification or having your neighborhood deteriorate via lack of investment certainly qualifies. That's what motiviated my mother's first generation American siblings and cousins to get out of the inner city in the 1950-60s. Of course they are white and that certainly helped...<ggg> >>>Five years ago the city of Baltimore was looking at 40,000 houses that were empty, tax delinquent and needed to be destroyed. Previous to those tax changes the city was in a Rennaisance of sorts with lots of people buying and renovating older houses. After '86 the residential investment housing was largely bought up by a couple of large concerns that basically only fixed the houses up enough to get them to pass section 8 standards or rented out "as is" for cheap and allowed to deteriorate. Meanwhile the lists of people wanting to get into section 8 housing anywhere but in the city grew longer and the list of those people wanting subsidized housing grew longer as high rise projects were destroyed. All the while a person like me could buy a house for 2k cash if I didn't mind the fact that no insurance company would give me fire insurance for it.<<< Interesting that you noted the above. I heard a diabolical argument that the elimination of real estate tax preference items was all quite intentional for reasons other than generating taxable revenue. Many low-income individuals (aka minority renters) had been dislocated by urban "gentrification" (your Rennaisance of sorts) and even more were due to be dislocated as a good deal of high rise public housing was scheduled for demolition. So where were they do go if this damn gentrification/Rennaisance continued? More than a few people didn't like the answer. Those in first tier older suburbs really didn't like the answer. Interesting argument, no? >>>Money moves to where it will get the best return. I don't know why the members of Congress have such a difficult time understanding this concept.<<< I think they understand this perfectly. The result is not what you or I would like to see.