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.

Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Bob Rudd who wrote (16119)	1/9/2003 10:15:25 AM
From: Brendan W	Read Replies (1) \| Respond to of 78750

re: bookkeeping nightmare I agree that bookkeeping would be more difficult, but i think nightmare is an exaggeration. Companies would have to post quarterly basis additions. Somebody will provide a service to tell you what your basis now is given a certain purchase price and date by summing up the basis additions. This is done now for free on yahoo for stock splits and spinoffs which are also a pain to account for. The benefits from more favorable tax treatment and from capital flowing more freely from less deserving to more deserving investments i think makes this proposal attractive. Three interesting things about this proposal are: first, if you want complex, implement this proposal PARTIALLY as is being discussed. If the administration doesn't get this at 100% of corporate taxed income won't be taxed again, but only say 40%, it will be all the more confusing. I hope the partial (or even worse, phased) implementation is not done... and it's up or down on this proposal. Second, this proposal should benefit low-PE investments as i think as most that have higher GAAP income will have higher taxable income. Third, i don't understand what will happen when companies have taxable losses. Surely they will offset taxable income and DECREASE your basis. The interesting scenario is when you have NET taxable losses since your initial investment. It would seem your basis would be less than your initial purchase price. I like this aspect from a topdown view of a capitalist economy as investors will have more incentive to move investments to more deserving companies.

To: Bob Rudd who wrote (16119)	1/9/2003 3:18:05 PM
From: Don Earl	Read Replies (1) \| Respond to of 78750

Bob, I don't see much additional accounting burden on companies. They're already have to have the Federal tax numbers available in addition to their GAAP reporting. A footnote in the PRs and the quarterly reports is about all that would be required. Where it gets messy is going back over every trade to see when it was purchased and digging the information out of the filings to see how much cost basis to add. What I think makes it interesting is it would put pressure on companies to report per share results on the second set of books. If XYZ trades for $60 and reports $4 a year in earnings, investors are going to want the extra $4 added to their cost basis. If XYZ is aggressively using loopholes in GAAP to come up with $4 but is only paying Federal tax on .50, it makes the discrepancy a lot more visible than the current system of entering a tax liability or "other" liability someplace on the balance sheet. After awhile even the least savvy investor will figure out that a PE of 120 is not so good, even with a GAAP PE of 15. I think it would go a long way toward creating enough public awareness of the flaws in GAAP accounting to eventually eliminate the system in favor of tax accounting, but this backdoor approach of inventing cost basis dividends strikes me as being too unwieldy to become law.