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Subject: Taxing investment income - idea rss

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Bojan Ramadanovic
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Taxing investment income is often a political hot potato as it involves a bit of circle-squaring. On one hand people benefiting from investment income tend to be at least well off and therefore giving them tax exemptions is seen as unfair (Warren Buffet argument) on the other hand, investing is inherently risky proposition and it is unfair to tax the winnings without in some way accounting for the loses (both real and potential).

Current solution is two-fold, on one hand we allow the actual investment loss to be used (under some conditions) to offset investment income realized elsewhere, on the other hand we set arbitrarily lower taxation rate for investment income (compared with other income). First of the two solutions creates very complicated system of accounting which opens all sorts of possibilities for loophole hunting and exploitation on one hand and creates some perverse incentives on the other (by acting as a built-in hedge, it encourages more risk-taking then would otherwise be desirable). It is also incomplete as there is always the possibility of non-offsetable losses (including total losses) for any given investor.
Lower rate on investment is even worse as it is in many cases entirely arbitrary and therefore easy target of political lobbying.

My proposal is the following:

Instead of tracking net investment income and taxing it at an arbitrary rate - track the capital investment and tax it (at the same rate as any other income) on the income it *would* have generated had it been invested in t-bonds or some similar super-secure benchmark.

As a result you would

a) encourage investment by introducing the holding cost on the unproductive assets such as gold etc...

b) reduce the incentive to invest in risky assets by removing the current built-in loss hedge

c) have fair and equitable way to compare tax-rate on investment and other forms of income

d) get rid of a vast sea of law concerning capital loss/gain/attribution etc... with all its attendant problems and pitfalls.

What do the esteemed RSPers think ?

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Wouldn't this mean that investors who try to invest large, but fail, would be wiped out both by their losses and by a huge tax bill?

I think it would encourage an extremely conservative form of investment. This might not be a bad thing, but if nothing else, how would those who lose big and get wiped out be able to pay this tax?
 
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My instinct tells me its not radical enough.

an you explain (b) in layman's terms please?

Also in the current climate I think "super safe" is hard to quantify. How good will T-bills be when the world switches away from the dollar as a reserve currency?
This point of your policy, were it to be accepted, is where the horse-trading would come in. And what's to stop someone from pegging these investments to the T-bill rate then setting the interest rate to zero?
 
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I just woke up and read your text quickly, but if I understand it correctly, then we sort of have that system already: http://www.thelocal.se/25756/20100326/

A form of investment account that does not let you use losses for offsetting taxes, and otoh does not tax your gains. Instead you pay a percentage of your total investment 1) the second you add cash to the account and 2) four times a year. This percentage is somehow based on what you would have got if the money was all in a standard savings account. It is normally said that if you make on average 4% or more on your investment, using this type of account is better; if you make less than 4%, then owning stocks directly is better. For me, I don't think owning stocks makes sense if you expect less than 4% so I'm using this kind of account. A nice thing with it is that you don't need to do any tax declarations - the bank does everything for you, automatically.

As losses can't be used, it does become more risky, but that should be offset by the increased returns. One could predict that this change means more investment in Volvo Trucks and less in We Build New Inventiunz in Our Garage. But if this makes more people willing to own stocks, it should mitigate that effect. I for one would hesitate to invest if I had to do all the paperwork associated with the traditional method of stock ownership. Another negative is that dividends from foreign companies are still taxed in that country, making this system having a bit of a protectionist effect. But if another country, say Finland, introduced the same system, then the countries could probably agree to something there.

Yes, it is politically unstable. The SocDems and Lefts have said they would scrap it when getting power back. As often, my Greens are undecided, but I'm sure they wouldn't hesitate to abandon investors like me if getting more choo-choo-trains in return
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Fwing wrote:
an you explain (b) in layman's terms please?
If an investment fails, costing you £1000, then you don't lose £1000, but rather £700, if you somewhere in the same judicial entity have a profit of more than £1000, and if the tax on such profits would be 30%

Old system: You invest £1000 in Crash.com and £1000 in Jackpot.com.

Crash goes bankrupt, while Jackpot goes up 100%

Total profit: 0. Tax: 0

Without your investment in Crash.com, you would have had a profit of £1000, and paid tax on that.

New system: you pay a percentage of the £2000 you have invested, so regardless of how it goes, your tax is something like £4. Meaning that bad investments are now worse than before. And good investments better than before.
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Boaty McBoatface
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Why should potential loses be taken into account, my potential job loss is not (and everyone potentially can lose their job)? No one should be taxed if they make a loss (and would not be under a system that taxed actually earnings). As to risk, well that’s why you get such as high return. Sorry but I see no reason why income from investments should not be taxed like any other earnings. Also are not investments protected by compensation schemes funded by (for example in the UK the FSCS)? Sorry but if they are taking risks and getting lower tax becasuse of it they should bear the full burdon of any loss.
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Rich Shipley
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I don't see the issue in treating investment like any other sort of occupation or business and taxing the net income at the normal rate. We all have to keep track of our money, why is it considered such a burden in this case?
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slatersteven wrote:
No one should be taxed if they make a loss


A nice principle, as long as sophisticated accountants don't get to work on the books.

AIUI some of the greatest Hollywood blockbusters have officially made losses - so the taxman, and those actors who are on a percentage (and didn't have good enough lawyers/accountants), got nothing ... but the producers, financiers, and studios were laughing all the way to the next private jet.
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Boaty McBoatface
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andyholt wrote:
slatersteven wrote:
No one should be taxed if they make a loss


A nice principle, as long as sophisticated accountants don't get to work on the books.

AIUI some of the greatest Hollywood blockbusters have officially made losses - so the taxman, and those actors who are on a percentage (and didn't have good enough lawyers/accountants), got nothing ... but the producers, financiers, and studios were laughing all the way to the next private jet.


But I would have thought this was harder with investments. Of course I would argue that you should get taxed on what you make, and if you make a loss tough you do not get a tax rebate, after all its you and not the tax payer who benefits from the profits so its you (and not the tax payer) who should take the hit.
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Bojan Ramadanovic
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slatersteven wrote:
Why should potential loses be taken into account, my potential job loss is not (and everyone potentially can lose their job)? No one should be taxed if they make a loss (and would not be under a system that taxed actually earnings). As to risk, well that’s why you get such as high return. Sorry but I see no reason why income from investments should not be taxed like any other earnings. Also are not investments protected by compensation schemes funded by (for example in the UK the FSCS)? Sorry but if they are taking risks and getting lower tax becasuse of it they should bear the full burdon of any loss.


Potential loss of investment and loss of job are not the same thing.
If you lose a job you simply lose a (particular) opportunity to trade your work for money you do not accruing risk.

If you are paid bi-weekly you at most risk two weeks pay, in the case of catastrophic failure of your employer and even that is in most jurisdiction treated as secured loan.

Equivalent of investment is putting in all the work ahead and then hoping to get paid some time down the line with no assurance one will be.

And yes, I entirely agree that secure investment income should be taxed at the same rate as the salary income - that is the purpose of this proposal.
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Boaty McBoatface
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bramadan wrote:
slatersteven wrote:
Why should potential loses be taken into account, my potential job loss is not (and everyone potentially can lose their job)? No one should be taxed if they make a loss (and would not be under a system that taxed actually earnings). As to risk, well that’s why you get such as high return. Sorry but I see no reason why income from investments should not be taxed like any other earnings. Also are not investments protected by compensation schemes funded by (for example in the UK the FSCS)? Sorry but if they are taking risks and getting lower tax becasuse of it they should bear the full burdon of any loss.


Potential loss of investment and loss of job are not the same thing.
If you lose a job you simply lose a (particular) opportunity to trade your work for money you do not accruing risk.

If you are paid bi-weekly you at most risk two weeks pay, in the case of catastrophic failure of your employer and even that is in most jurisdiction treated as secured loan.

Equivalent of investment is putting in all the work ahead and then hoping to get paid some time down the line with no assurance one will be.

And yes, I entirely agree that secure investment income should be taxed at the same rate as the salary income - that is the purpose of this proposal.


Most people are paid monthly nowdays. Your right of course, most home reposesions are not due to investors losing thier shirts, but workers losing thier jobs.

I would argue that the greater risks are compensated for by greater return, that is why the return is so high. As such I don't see why they should have the additional benifit of tax breaks. If they don't want the risk they should not take the reward, and of tehy want the reward we should not have to bail out thier risk taking.
 
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Bojan Ramadanovic
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rshipley wrote:
I don't see the issue in treating investment like any other sort of occupation or business and taxing the net income at the normal rate. We all have to keep track of our money, why is it considered such a burden in this case?


Issue is that "net" income from investment includes a fair bit of consequences of risk. Say that a business has a 10% annual chance of total failure
but otherwise gives 14.4% return. Alternatively, government offers 3% return on bonds.

Say I am am investor that has to choose whether to invest $100.000 in the risky business or in safe bonds.

In the absence of any tax my expected annual return from the business is:

0.9*0.144*$100,000 - 0.1*1*$100,000 = $3,000

which is of course the same expected return as the return on the 3% bond.

However, say you have 30% income tax though:

Business now has expected after-tax return of:

0.9*0.144*$100,000*0.7-0.1*1*$100,000 = -$900

whereas the bond returns healthy $3,000*0.7 = $2,100.

This shows (but does not prove - proof is longer but entirely doable) the necessity for *some* risk offset otherwise it is always worth investing in least risky vehicle imaginable.
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Chad Ellis
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slatersteven wrote:
Why should potential loses be taken into account, my potential job loss is not (and everyone potentially can lose their job)?


The problem with this analogy is that most people have only one job but several investments.

If a person invests $100 in company A and $100 in company B and then company A goes bust (total loss of investment) and company B is a huge hit (returns three to one) then the investor has had a net gain of $100 -- they put in $200 and got back $0 plus $300.

Bramadan, your idea sounds pretty interesting. It would reward higher-risk investing (whether that's good or bad is unclear). My main concern is that it punishes investment that doesn't produce cash. This is fine for highly-liquid investments (e.g. commodities) but less so for long-term business investments by individuals where that's their main investment. Mainly I'm worried about people starting businesses; these often take longer to turn cash-positive than their founders expect, so I could see people getting caught by a tax burden before they were earning a return.
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Bojan Ramadanovic
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Chad_Ellis wrote:
slatersteven wrote:
Why should potential loses be taken into account, my potential job loss is not (and everyone potentially can lose their job)?


The problem with this analogy is that most people have only one job but several investments.

If a person invests $100 in company A and $100 in company B and then company A goes bust (total loss of investment) and company B is a huge hit (returns three to one) then the investor has had a net gain of $100 -- they put in $200 and got back $0 plus $300.

Bramadan, your idea sounds pretty interesting. It would reward higher-risk investing (whether that's good or bad is unclear). My main concern is that it punishes investment that doesn't produce cash. This is fine for highly-liquid investments (e.g. commodities) but less so for long-term business investments by individuals where that's their main investment. Mainly I'm worried about people starting businesses; these often take longer to turn cash-positive than their founders expect, so I could see people getting caught by a tax burden before they were earning a return.


It only rewards high risk investment in comparison with the situation where there is no risk-offset at all.
In most of the western countries risk-offsets currently offered are such that switching to this method would in fact make high-risk investment less appealing.

I agree that it would put a burden on a small businessman who is heavily invested in their own business in its early years but this would be relatively light and entirely predictable burden particularly compared with other costs of starting a business.

For example a small business with net worth of $1mil under regime of 3% bond returns and 35% income tax would end up paying $10.500 annually in income tax - mere fraction of the rent/salary bill of a $1mil business.

Also, most of the small business starting up are at least somewhat leveraged and they would end up paying no tax at all on the borrowed part of their capital (lender would pay tax on that).

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Chad_Ellis wrote:
slatersteven wrote:
Why should potential loses be taken into account, my potential job loss is not (and everyone potentially can lose their job)?


The problem with this analogy is that most people have only one job but several investments.

If a person invests $100 in company A and $100 in company B and then company A goes bust (total loss of investment) and company B is a huge hit (returns three to one) then the investor has had a net gain of $100 -- they put in $200 and got back $0 plus $300.

Bramadan, your idea sounds pretty interesting. It would reward higher-risk investing (whether that's good or bad is unclear). My main concern is that it punishes investment that doesn't produce cash. This is fine for highly-liquid investments (e.g. commodities) but less so for long-term business investments by individuals where that's their main investment. Mainly I'm worried about people starting businesses; these often take longer to turn cash-positive than their founders expect, so I could see people getting caught by a tax burden before they were earning a return.


Which of course means that the average invesotr in fact takes less risk then the average worker, they have only one income to lose. In effect those who make little gain but risk all they have sibserdise those who take huge risk but has multiple incomes.

I would have said that the earnings from investments should be aggregated together and tax paid on the reminder. Thus if they make £300 on investment A and lose £200 in investment B they pay tax on £100 pounds (their total earnings), at whatever rate the rest of us pay.
 
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bramadan wrote:
Chad_Ellis wrote:
slatersteven wrote:
Why should potential loses be taken into account, my potential job loss is not (and everyone potentially can lose their job)?


The problem with this analogy is that most people have only one job but several investments.

If a person invests $100 in company A and $100 in company B and then company A goes bust (total loss of investment) and company B is a huge hit (returns three to one) then the investor has had a net gain of $100 -- they put in $200 and got back $0 plus $300.

Bramadan, your idea sounds pretty interesting. It would reward higher-risk investing (whether that's good or bad is unclear). My main concern is that it punishes investment that doesn't produce cash. This is fine for highly-liquid investments (e.g. commodities) but less so for long-term business investments by individuals where that's their main investment. Mainly I'm worried about people starting businesses; these often take longer to turn cash-positive than their founders expect, so I could see people getting caught by a tax burden before they were earning a return.


It only rewards high risk investment in comparison with the situation where there is no risk-offset at all.
In most of the western countries risk-offsets currently offered are such that switching to this method would in fact make high-risk investment less appealing.

I agree that it would put a burden on a small businessman who is heavily invested in their own business in its early years but this would be relatively light and entirely predictable burden particularly compared with other costs of starting a business.

For example a small business with net worth of $1mil under regime of 3% bond returns and 35% income tax would end up paying $10.500 annually in income tax - mere fraction of the rent/salary bill of a $1mil business.

Also, most of the small business starting up are at least somewhat leveraged and they would end up paying no tax at all on the borrowed part of their capital (lender would pay tax on that).



I think your definition of 'Small Business' is different from mine.

$1mil net worth is quite a bit, really. Most small businesses are much less- more around the $250,000-$400,000 range, if that. Many restuarants can have a net worth considerably lower.

William
 
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slatersteven wrote:
Which of course means that the average invesotr in fact takes less risk then the average worker, they have only one income to lose. In effect those who make little gain but risk all they have sibserdise those who take huge risk but has multiple incomes.

I would have said that the earnings from investments should be aggregated together and tax paid on the reminder. Thus if they make £300 on investment A and lose £200 in investment B they pay tax on £100 pounds (their total earnings), at whatever rate the rest of us pay.


I think the problem is that by using the term "risk" it sounds like we're saying that investors should get a tax break for the danger they could lose money. That's not what either of us are saying, however.

There are two factors at hand. The first is that we don't want tax policy to push money towards less productive uses. As Bramadan showed with math, if you just tax gains as they come (i.e. no risk cover) then your tax policy rewards low-risk investments.

Another way of looking at it is that if you don't factor in losses then the taxation is isn't necessarily hitting income at all. If I invest $100 and lose $50 in year one and make $50 in year two I'm just at break-even. If you tax gains but don't let me offset losses (and the offset is precisely how the risk adjustment works) then I get taxed as hard as someone who actually made $50 during that period.
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Darilian wrote:
bramadan wrote:
Chad_Ellis wrote:
slatersteven wrote:
Why should potential loses be taken into account, my potential job loss is not (and everyone potentially can lose their job)?


The problem with this analogy is that most people have only one job but several investments.

If a person invests $100 in company A and $100 in company B and then company A goes bust (total loss of investment) and company B is a huge hit (returns three to one) then the investor has had a net gain of $100 -- they put in $200 and got back $0 plus $300.

Bramadan, your idea sounds pretty interesting. It would reward higher-risk investing (whether that's good or bad is unclear). My main concern is that it punishes investment that doesn't produce cash. This is fine for highly-liquid investments (e.g. commodities) but less so for long-term business investments by individuals where that's their main investment. Mainly I'm worried about people starting businesses; these often take longer to turn cash-positive than their founders expect, so I could see people getting caught by a tax burden before they were earning a return.


It only rewards high risk investment in comparison with the situation where there is no risk-offset at all.
In most of the western countries risk-offsets currently offered are such that switching to this method would in fact make high-risk investment less appealing.

I agree that it would put a burden on a small businessman who is heavily invested in their own business in its early years but this would be relatively light and entirely predictable burden particularly compared with other costs of starting a business.

For example a small business with net worth of $1mil under regime of 3% bond returns and 35% income tax would end up paying $10.500 annually in income tax - mere fraction of the rent/salary bill of a $1mil business.

Also, most of the small business starting up are at least somewhat leveraged and they would end up paying no tax at all on the borrowed part of their capital (lender would pay tax on that).



I think your definition of 'Small Business' is different from mine.

$1mil net worth is quite a bit, really. Most small businesses are much less- more around the $250,000-$400,000 range, if that. Many restuarants can have a net worth considerably lower.

William


Sure, but his point is that even for a business with $1 million of equity investment the tax burden wouldn't be onerous. For smaller businesses it would be even less so.
 
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Chad_Ellis wrote:
slatersteven wrote:
Which of course means that the average invesotr in fact takes less risk then the average worker, they have only one income to lose. In effect those who make little gain but risk all they have sibserdise those who take huge risk but has multiple incomes.

I would have said that the earnings from investments should be aggregated together and tax paid on the reminder. Thus if they make £300 on investment A and lose £200 in investment B they pay tax on £100 pounds (their total earnings), at whatever rate the rest of us pay.


I think the problem is that by using the term "risk" it sounds like we're saying that investors should get a tax break for the danger they could lose money. That's not what either of us are saying, however.

There are two factors at hand. The first is that we don't want tax policy to push money towards less productive uses. As Bramadan showed with math, if you just tax gains as they come (i.e. no risk cover) then your tax policy rewards low-risk investments.

Another way of looking at it is that if you don't factor in losses then the taxation is isn't necessarily hitting income at all. If I invest $100 and lose $50 in year one and make $50 in year two I'm just at break-even. If you tax gains but don't let me offset losses (and the offset is precisely how the risk adjustment works) then I get taxed as hard as someone who actually made $50 during that period.


I would have thought that given recent history encouraging less risky investments is not a bad thing. As to not making as much as someone else, sorry thats why you get higher returns, if you don't want to take the risk of earning less don't engage in risky investment. But I fail to see wy you trying to maximise your income should be subersides by those who do not take risks. If anything you encourage risk taking.
 
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Chad_Ellis wrote:
Darilian wrote:
bramadan wrote:
Chad_Ellis wrote:
slatersteven wrote:
Why should potential loses be taken into account, my potential job loss is not (and everyone potentially can lose their job)?


The problem with this analogy is that most people have only one job but several investments.

If a person invests $100 in company A and $100 in company B and then company A goes bust (total loss of investment) and company B is a huge hit (returns three to one) then the investor has had a net gain of $100 -- they put in $200 and got back $0 plus $300.

Bramadan, your idea sounds pretty interesting. It would reward higher-risk investing (whether that's good or bad is unclear). My main concern is that it punishes investment that doesn't produce cash. This is fine for highly-liquid investments (e.g. commodities) but less so for long-term business investments by individuals where that's their main investment. Mainly I'm worried about people starting businesses; these often take longer to turn cash-positive than their founders expect, so I could see people getting caught by a tax burden before they were earning a return.


It only rewards high risk investment in comparison with the situation where there is no risk-offset at all.
In most of the western countries risk-offsets currently offered are such that switching to this method would in fact make high-risk investment less appealing.

I agree that it would put a burden on a small businessman who is heavily invested in their own business in its early years but this would be relatively light and entirely predictable burden particularly compared with other costs of starting a business.

For example a small business with net worth of $1mil under regime of 3% bond returns and 35% income tax would end up paying $10.500 annually in income tax - mere fraction of the rent/salary bill of a $1mil business.

Also, most of the small business starting up are at least somewhat leveraged and they would end up paying no tax at all on the borrowed part of their capital (lender would pay tax on that).



I think your definition of 'Small Business' is different from mine.

$1mil net worth is quite a bit, really. Most small businesses are much less- more around the $250,000-$400,000 range, if that. Many restuarants can have a net worth considerably lower.

William


Sure, but his point is that even for a business with $1 million of equity investment the tax burden wouldn't be onerous. For smaller businesses it would be even less so.


$4000 annually for a $400,000 net worth business is quite a hit.

Especially when combined with state taxes.

Darilian
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Darilian wrote:
Chad_Ellis wrote:
Darilian wrote:
bramadan wrote:
Chad_Ellis wrote:
[q="slatersteven"]Why should potential loses be taken into account, my potential job loss is not (and everyone potentially can lose their job)?


The problem with this analogy is that most people have only one job but several investments.

If a person invests $100 in company A and $100 in company B and then company A goes bust (total loss of investment) and company B is a huge hit (returns three to one) then the investor has had a net gain of $100 -- they put in $200 and got back $0 plus $300.

Bramadan, your idea sounds pretty interesting. It would reward higher-risk investing (whether that's good or bad is unclear). My main concern is that it punishes investment that doesn't produce cash. This is fine for highly-liquid investments (e.g. commodities) but less so for long-term business investments by individuals where that's their main investment. Mainly I'm worried about people starting businesses; these often take longer to turn cash-positive than their founders expect, so I could see people getting caught by a tax burden before they were earning a return.


It only rewards high risk investment in comparison with the situation where there is no risk-offset at all.
In most of the western countries risk-offsets currently offered are such that switching to this method would in fact make high-risk investment less appealing.

I agree that it would put a burden on a small businessman who is heavily invested in their own business in its early years but this would be relatively light and entirely predictable burden particularly compared with other costs of starting a business.

For example a small business with net worth of $1mil under regime of 3% bond returns and 35% income tax would end up paying $10.500 annually in income tax - mere fraction of the rent/salary bill of a $1mil business.

Also, most of the small business starting up are at least somewhat leveraged and they would end up paying no tax at all on the borrowed part of their capital (lender would pay tax on that).



I think your definition of 'Small Business' is different from mine.

$1mil net worth is quite a bit, really. Most small businesses are much less- more around the $250,000-$400,000 range, if that. Many restuarants can have a net worth considerably lower.

William


Sure, but his point is that even for a business with $1 million of equity investment the tax burden wouldn't be onerous. For smaller businesses it would be even less so.


$4000 annually for a $400,000 net worth business is quite a hit, if this ends up being extra tax.

Especially when combined with state taxes.

You can't just look at in comparison to salaries and rent. You have to look at it in comparison to the current tax load for that business currently.

You have to remember that a lot of small business owners are trying live off the profits that they make in the business, and aren't just either reinvesting their profits or putting them in some other fund. Taking away an extra $4000 per annum is a big deal if you're expecting to be able use that help make your house payment or buy groceries.

Darilian
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Chad Ellis
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slatersteven wrote:
I would have said that the earnings from investments should be aggregated together and tax paid on the reminder. Thus if they make £300 on investment A and lose £200 in investment B they pay tax on £100 pounds (their total earnings), at whatever rate the rest of us pay.


I should have focused in on this, as I don't think we're actually in disagreement. The one thing that I think needs to be added in is that it's not just that you net off gains and losses from different investments but also gains and losses from different years. We agree that in the above case tax should be paid on the net earnings but I'd also say that if someone loses 200 in year one and gains 300 in year two then the year two tax should be offset by the losses from the prior year.
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Darilian wrote:
$4000 annually for a $400,000 net worth business is quite a hit, if this ends up being extra tax.

Especially when combined with state taxes.

You can't just look at in comparison to salaries and rent. You have to look at it in comparison to the current tax load for that business currently.

You have to remember that a lot of small business owners are trying live off the profits that they make in the business, and aren't just either reinvesting their profits or putting them in some other fund. Taking away an extra $4000 per annum is a big deal if you're expecting to be able use that help make your house payment or buy groceries.


I think Bramadan's idea is that it wouldn't be an extra tax; it would be the entire tax paid on the investment. No capital gains later on, and any income from the investment itself would be tax free.
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Chad_Ellis wrote:
slatersteven wrote:
I would have said that the earnings from investments should be aggregated together and tax paid on the reminder. Thus if they make £300 on investment A and lose £200 in investment B they pay tax on £100 pounds (their total earnings), at whatever rate the rest of us pay.


I should have focused in on this, as I don't think we're actually in disagreement. The one thing that I think needs to be added in is that it's not just that you net off gains and losses from different investments but also gains and losses from different years. We agree that in the above case tax should be paid on the net earnings but I'd also say that if someone loses 200 in year one and gains 300 in year two then the year two tax should be offset by the losses from the prior year.


But that not only happens with investors, in the last few years many workers have taken pay cuts to help out thier employers. Every year people mhave to move to new lower paid jobs. Why should those who can afford to lose lose the least? Why should those who take huge risks be rewarded for doing the same thing as millions of people every year to to help?
 
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Chad_Ellis wrote:
Darilian wrote:
$4000 annually for a $400,000 net worth business is quite a hit, if this ends up being extra tax.

Especially when combined with state taxes.

You can't just look at in comparison to salaries and rent. You have to look at it in comparison to the current tax load for that business currently.

You have to remember that a lot of small business owners are trying live off the profits that they make in the business, and aren't just either reinvesting their profits or putting them in some other fund. Taking away an extra $4000 per annum is a big deal if you're expecting to be able use that help make your house payment or buy groceries.


I think Bramadan's idea is that it wouldn't be an extra tax; it would be the entire tax paid on the investment. No capital gains later on, and any income from the investment itself would be tax free.


If that was the case, I could live with that. Though I'd like to see it be a bit more progressive at the lower levels of net worth.

Darilian
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