Which of you twits...

[Kuciwalker]

It's precisely because Albie doesn't actually understand economics or finance that he mistakes omissions for errors.

[Aeson]

Please keep this thread on topic... it's for posting googled information about poly posters who are *******s and/or twits.

[Kuciwalker]

Here's Case A, Kuci:

http://apolyton.net/showthread.php/191231-for-nye?p=5797065&viewfull=1#post5797065

WHAT DID YOU SAY, KUCI?

Capital losses are deductible from earned income up to only $3000, dufus, which is basically nothing.

[Al B. Sure!]

Capital losses are deductible from earned income (as opposed to unearned income) up to only $3000, dufus, which is basically nothing.

AND YET YOU SAID...

people can only deduct capital losses from capital gains, not from earned income

So I'll take that as an admission of you being wrong

And it's $3000 per tax return. You can carry the losses over multiple years.

[Kuciwalker]

I'm willing to bet that the majority of annual capital losses incurred by individuals outside of tax-sheltered accounts exceed $3000.

[Egbert]

Albie, does it matter? Is it worth an argument?
It is off topic, the topic being our good friend KrazyHorse.

[Al B. Sure!]

I'm willing to bet that the majority of annual capital losses incurred by individuals outside of tax-sheltered accounts exceed $3000.

Again... the losses can be carried over multiple years. A $30,000 capital loss can be deducted from income at $3000/year over 10 years.

[Kuciwalker]

AND YET YOU SAID...

So I'll take that as an admission of you being wrong

Oh man, an extremely limited deduction of CG from earned income was totally relevant!

Again, evidence that AS doesn't actually understand economics or finance, and can't contribute more than bringing up wholly irrelevant details.

And it's $3000 per tax return. You can carry the losses over multiple years.

If you carry over the excess and don't suck, the excess will be deducted from your capital gains the following year, not your earned income.

[Egbert]

Please keep this thread on topic... it's for posting googled information about poly posters who are *******s and/or twits.

Yes. Please keep the thread on topic.

[Kuciwalker]

No, the topic is how inane you and Albie are.

[Egbert]

You speak as if inane is somehow unusual around here?

[Kuciwalker]

You and AS are exceptional specimens.

[Al B. Sure!]

It was relevant in the context in which you had a scenario of Bob and Alice or something and were pointing out the differing effective tax rates under both a system of capital gains taxation and one without it, and noting a distortion existing in aggregate which 'penalized those who save'. I noted that you were ignoring that fact that capital gains only exist with securities that carry risk so the fact that there are tax advantages to a capital gains tax such that the effective tax rate will be lower for those who suffered capital losses would be relevant.

I went and made this late-night post trying to express how changes in the riskiness of a security can have a (I guess) non-linear effect on the effective tax rate in relation to the nominal tax rate in the presence of capital gains taxes.

Fine, maybe it was only tangentially-related and it was just my own musings but whatever. Ask Jaguar about me on fantasy football topics. Still, I have difficulty expressing it but I was trying to express the idea that there would be a way to determine the 'average' of all possible gains/losses (better than your simplistic Bob/Alice with successful investments example) and get the 'average' effective tax rate and to then determine how much the 'distortion' is worth relative to the benefits that can be derived from the extra taxation.

effective tax rate= 100*[(I*PsubscriptN*(1+N))-(((I*(1-T))*(1+(PsubscriptN*N)*(1-T)))]/(I*PsubscriptN*(1+N))

where N is the % increase/decrease in value of a security, PsubscriptN is the probability of N for all N, and T is the nominal tax rate.

The basic intuitive thing is that losses up to $3000 offset equivalent gains for tax purposes because of the benefit in tax deduction but I'm not sure exactly how to represent it in the equation (can't think right now how to do it so it's not represented in the equation except as a constraint relating to N I suppose). Beyond that though, obviously, the disadvantages of tax become apparent and the ETR approaches or exceeds the nominal TR.

Fooling around with it, assuming a 20% tax rate (including on capital gains), with a $3000 capital loss maximum deduction, and a $10,000 initial investment (well, it's taxed at 20% so $8000 investment), the security can dip to a loss of 38% (8000*(1-.38)=~5000) before hitting the $3000 capital loss wall. That leaves an ETR of 10.4% or a mere 52% of the nominal TR. If the value increases by 38%, the ETR is 24.4% (122% of the NTR). So at these points, I can pay 52% of my initial tax if I lose $3000 or 122% of my initial tax if I make $3000.

At higher tax rates, this disparity in the % of the nominal that the ETR is between a 38% loss and a 38% gain closes (at 50% nominal TR, the ETR as % of NTR becomes 70% and 113% respectively). So higher nominal TR results in weakened tax benefits from capital losses but also ETR's closer to the nominal TR on the positive gain side. Makes sense, as you approach 100% NTR, ETR should approach 100%. Kind of funny. At higher tax rates, ETR approaches NTR. Higher tax rates!

Now, at higher gains, all else being equal, ETR as a % of NTR increases but at a decreasing rate (1%->2% gain, ETR as % of NTR increases by 0.77 or 0.7% increase, 40%->41% ETR as % of NTR increases by 0.40 or 0.3%). These changes in the ETR as % of NTR get smaller overall and more narrow between different gain levels as the tax rate increases (At 40% tax rate, 1%->2% gain, 0.58 or 0.57%; 40%->41%, .30 or 0.25%).

[Al B. Sure!]

I don't know. Does that make sense that if you were to have an average risk measure of all securities in a market weighted by the proportion by which capital losses up to $3000 per income earner are distributed among investors and considering all the different nominal tax rates, that you could, with a more complicated model than the one I posted, describe a capital gains tax threshold at which, on average and in aggregate, effective tax rate is nearly equal to the nominal tax rate, WITHOUT that savings inhibiting distortion you discussed?

[Kuciwalker]

It was relevant in the context in which you had a scenario of Bob and Alice or something and were pointing out the differing effective tax rates under both a system of capital gains taxation and one without it, and noting a distortion existing in aggregate which 'penalized those who save'.

Yes, I was showing a grossly simplified example to demonstrate the compounding effect of taxes on investment returns. Among other things, I set the CG and income tax rates to be identical! So you thought it was relevant that I didn't use the precise deduction system in place in the US tax code? It isn't relevant because the compounding effect remains so long as you tax compounded returns.

I noted that you were ignoring that fact that capital gains only exist with securities that carry risk so the fact that there are tax advantages to a capital gains tax such that the effective tax rate will be lower for those who suffered capital losses would be relevant.

No, it's not relevant to the compounding effect.

I went and made this late-night post trying to express how changes in the riskiness of a security can have a (I guess) non-linear effect on the effective tax rate in relation to the nominal tax rate in the presence of capital gains taxes.

Yes, you realized that there is a compounding effect which was precisely the point I had proved. Good job!

Still, I have difficulty expressing it but I was trying to express the idea that there would be a way to determine the 'average' of all possible gains/losses (better than your simplistic Bob/Alice with successful investments example) and get the 'average' effective tax rate and to then determine how much the 'distortion' is worth relative to the benefits that can be derived from the extra taxation.

Or you could just raise the tax rate on earned income, eliminate the CG and income tax on unearned income, and reduce total distortion = free lunch, within a wide range of plausible values for the relevant elasticities.

Fine, maybe it was only tangentially-related and it was just my own musings but whatever. Ask Jaguar about me on fantasy football topics.

You mean the fantasy football league where he's 12-0 and you're 4-8?