DavidTC: missed your comment. I appreciate the mature name calling. We have been talking about capital gains, which are taxed almost identically to dividends, since they amount to the same benefit to shareholders. Money that does not get paid as dividends, that is "reinvested in the company" is money that (since we are talking about this money in this way in the first place) originated as corporate profit. The fact that it's reinvested isn't the reason that it's profit, but the fact that it was considered to be paid as a dividend means that it WAS corporate profit (at least in financially sound corporations). Keeping it in the company means it now has extra money to use.
you pay taxes on a transaction with a completely unrelated third party
Wrong. You are paying taxes on the money you earned, which was not from the sale of your shares, but on their increased value. I used this example earlier: When you catch a home run baseball... let's say Barry Bonds' 800th home run... you just gained a lot of wealth, and you are expected to pay taxes on that wealth, whether or not you sell the ball. We are taxed when we sell stocks for simplicity's sake (who knows if this stock will go down in value next year), but this does NOT mean we are paying taxes on the transaction. We are paying taxes on the increased value of our stock.
khasim: Again, you are wrong. For an example of how wrong you are, look at LinkedIn's IPO. The people who invest in LinkedIn based their valuation of the company *entirely* on what they believe the company will make in profits. Read my previous example about the baseball. You are taxed on what someone estimates that ball will sell for.
gstrickler: Do you like baseball? When someone catches a big milestone home run ball, and decide to keep it, a value is assigned to that ball (based on an EXPECTED sale price), and that individual is then expected to pay taxes on that value. So naturally many of these people choose to sell the baseballs. The value was not gained when he sold the ball, but rather when he caught it. It's the same for capital gains. The value is not gained when you sell your shares, but rather when their expected worth goes up.
stock sales the whole time (which have NOTHING to do with corporate profits as you would know if you understood this)
Do you mean that stock sales do not go into the corporate pool of money? After an IPO, you are correct. If you meant the other way around (I sincerely hope not), corporate profits have *everything* to do with stock price.
And what did you think we were talking about? Stock prices, dividends, capital gains, they are all related! (ever wonder why the capital gains tax and dividend tax brackets are so similar? Hint: it's because while they are different types of transactions, their values come from the same place--corporate income. Dividends come directly from that pool of money. Stock prices are valued according to that pool of money, and the future of that pool of money). Stock prices go down by exactly the amount of a dividend. Did you know that? Funny how they can be so closely correlated.
There's nothing there about dividends, except that they can choose to issue dividends instead of keeping *their* money invested in the company. If you get the owners of 51% of the stock to ask for a dividend, guess what you'll probably get (assuming the board members want to keep their seats!). If you want one, but no one else does, you'll have no problem selling some of your shares (your company just made a profit, people want in!). The point I'm making is that even if you want a dividend while the (shareholder-elected) board doesn't, you can still choose to get effectively the same thing.
gstrickler: You have a serious misunderstanding of the word "direct." Current assets (which came from earnings and investments) plus what everyone believes the company will earn in the future are the *only* things that determine what a company's stock sells for. When a dividend is issued, guess what happens to the stock price. It goes down by *exactly* the amount of the dividend, because that company has that much fewer assets. These assets came from *income.* If you can't see how stock price is directly affected by income, I don't know how else to explain it. The reason stock prices are often times higher than assets is because people believe the company will have that much income over X years. Even if it's currently losing money, people can still believe a company will turn around and make a profit. It's *all* about the income.
khasim: I don't see how that's a caveat. Try again.
I never said anything about dividends. How did you come up with the idea that I'm "incorrectly conflating dividends?"
I'd also love to know how I "incorrectly conflated" wealth, job creation, the stock market, earned income, or capital gains. You just seem to have written a list of terms that happen to be what we are talking about.
jackbird: I also get limited liability with an LLC, but that has pass-through taxes. It's a "separate entity" by your definition, but the money I take out of it is only taxed a single time.
gstrickler: Speculation and belief of *income*! How hard is this for you to comprehend? The worth of my stock is what someone else is willing to pay for it, due to how much the corporation is perceived to be worth (based on what people think its income will be, and based on what its current assets *are*).
i_ate_god: Stock prices are related to perceived worth of a company. Perceived worth is directly affected by what a company has, and what people believe it will make. I'll bet I can make a company, where *all* it does is hold 5 million dollars, and sell 5 million shares for just under a dollar each (probably 95 to 99 cents, due to risk, etc) (and let's say this isn't an IPO. I already have $5 million). If that money disappears, guess how much those shares are then worth.
Oh, but I can! assuming x% is the percent that I own. All I have to do is sell some of my shares, and since the company made a profit in your example, the price of my shares probably went up (excluding external changes), meaning I can hold just as much money in the company as before, but still take my share of the profit. Unfortunately for me, however, the rest of the investors decided to reinvest their earnings, so even though I have just as much money invested (after selling shares), I now own a smaller percentage.
Read the last sentence in my previous post. It'll clear everything up for you.
If you're still left thinking that companies that do not currently have any assets, and will never make any money, can possibly have a positive stock price, then I don't know what to do for you. Perceived value == how much people think it will make in the next X years (exercise left up to the investor) + what it currently has.
What you're forcing yourself to perceive is that somehow the owners of a company are actually being paid by the company. That isn't the case. The owners of a company *are* the company. The money isn't exchanging hands a second time. It goes to the company, which is made up of owners of said company. Yet somehow it gets taxed twice.
If you're talking about buying stock in a corporation, the corporate income (or income tax) has nothing to do with it.
You're kidding, right? If Apple were to throw away $50 billion of its cash, what do you think would happen to the stock price? I'll bet its market capitalization will go down by about 50 billion dollars (excluding perception changes due to this extreme change). Corporate earnings do in fact *directly* affect stock prices. In fact current assets plus the estimated next X years of earnings are the best way to decide what a company should be worth.
No. Capital gains tax is a form of double taxation. I don't know how you still don't get it. Let's say I own a corporation. When my corporation earns money, it gets taxed. Since I own the corporation, that money is mine. The value of my stock goes up because the corporation now has more cash. I then pay additional taxes, even though my money hasn't changed hands a second time.
You're still misinterpreting things. When you get pizza, that money is exchanging hands (again). Therefore it gets taxed. When I pay capital gains tax, that money is not exchanging hands a second time. It was taxed when it went to the company (which I own a part of, and is at that point mine, since this money affects how much my investment is worth), then, without exchanging hands (it's already mine), it gets taxed again.
Your pizza example is extremely flawed. Corporate earnings are taxed. What's left over *belongs* to the investors. The corporation isn't paying the investors--the investors *are* the corporation. They own it. Look at how taxes in an LLC work (it's a beautifully simple system!). What I think would make much more sense is this money being taxed once. Either as personal income tax for the investors (like in an LLC), or as corporate income tax. Having both allows people like you to misunderstand what's really happening.
*Corporate* income tax plus capital gains. The corporation that you invested in is taxed on its earnings. Those earnings are where your gains come from.
It IS taxed at a higher rate. It's taxed twice. Just because one of the two taxes is 15% doesn't mean that the money wasn't already taxed at a much higher rate (usually roughly 35%).
And besides, do you really want to encourage people to put their money under a mattress instead of investing it in companies that give people jobs?
I'm not sure where I said any of what you just said I said. You pay capital gains tax on what your long term investments earn (which was already taxed as corporate income tax).
Capital gains is NOT the same as income tax. You are comparing apples and oranges. If you want to compare apples to apples, look at capital gains PLUS corporate income tax. It amounts to over 50%, except for companies that are in bed with the white house (GE).
Look at the line that I quoted. The point I'm making is that the wording shouldn't take any figuring-out. If they just state the facts, they will have more credibility. Making such a big effort to find the perfect wording makes it seem as though the facts don't back up their claims.
K, so they are trying to fix someone else's mistake. But they still shouldn't be trying to figure out how to make anything seem like anything. They should just state the facts. Period. The wording shouldn't take any figuring-out.
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DavidTC: missed your comment. I appreciate the mature name calling. We have been talking about capital gains, which are taxed almost identically to dividends, since they amount to the same benefit to shareholders. Money that does not get paid as dividends, that is "reinvested in the company" is money that (since we are talking about this money in this way in the first place) originated as corporate profit. The fact that it's reinvested isn't the reason that it's profit, but the fact that it was considered to be paid as a dividend means that it WAS corporate profit (at least in financially sound corporations). Keeping it in the company means it now has extra money to use.
you pay taxes on a transaction with a completely unrelated third party
Wrong. You are paying taxes on the money you earned, which was not from the sale of your shares, but on their increased value. I used this example earlier: When you catch a home run baseball... let's say Barry Bonds' 800th home run... you just gained a lot of wealth, and you are expected to pay taxes on that wealth, whether or not you sell the ball. We are taxed when we sell stocks for simplicity's sake (who knows if this stock will go down in value next year), but this does NOT mean we are paying taxes on the transaction. We are paying taxes on the increased value of our stock.
khasim: Again, you are wrong. For an example of how wrong you are, look at LinkedIn's IPO. The people who invest in LinkedIn based their valuation of the company *entirely* on what they believe the company will make in profits. Read my previous example about the baseball. You are taxed on what someone estimates that ball will sell for.
No, dividends to not lower the stock price by the exact amount of the dividend,
Yes, they do! Have you ever owned stock?
gstrickler: Do you like baseball? When someone catches a big milestone home run ball, and decide to keep it, a value is assigned to that ball (based on an EXPECTED sale price), and that individual is then expected to pay taxes on that value. So naturally many of these people choose to sell the baseballs. The value was not gained when he sold the ball, but rather when he caught it. It's the same for capital gains. The value is not gained when you sell your shares, but rather when their expected worth goes up.
Wow. Again... Wow.
stock sales the whole time (which have NOTHING to do with corporate profits as you would know if you understood this)
Do you mean that stock sales do not go into the corporate pool of money? After an IPO, you are correct. If you meant the other way around (I sincerely hope not), corporate profits have *everything* to do with stock price.
And what did you think we were talking about? Stock prices, dividends, capital gains, they are all related! (ever wonder why the capital gains tax and dividend tax brackets are so similar? Hint: it's because while they are different types of transactions, their values come from the same place--corporate income. Dividends come directly from that pool of money. Stock prices are valued according to that pool of money, and the future of that pool of money). Stock prices go down by exactly the amount of a dividend. Did you know that? Funny how they can be so closely correlated.
There's nothing there about dividends, except that they can choose to issue dividends instead of keeping *their* money invested in the company. If you get the owners of 51% of the stock to ask for a dividend, guess what you'll probably get (assuming the board members want to keep their seats!). If you want one, but no one else does, you'll have no problem selling some of your shares (your company just made a profit, people want in!). The point I'm making is that even if you want a dividend while the (shareholder-elected) board doesn't, you can still choose to get effectively the same thing.
gstrickler: You have a serious misunderstanding of the word "direct." Current assets (which came from earnings and investments) plus what everyone believes the company will earn in the future are the *only* things that determine what a company's stock sells for. When a dividend is issued, guess what happens to the stock price. It goes down by *exactly* the amount of the dividend, because that company has that much fewer assets. These assets came from *income.* If you can't see how stock price is directly affected by income, I don't know how else to explain it. The reason stock prices are often times higher than assets is because people believe the company will have that much income over X years. Even if it's currently losing money, people can still believe a company will turn around and make a profit. It's *all* about the income.
khasim: I don't see how that's a caveat. Try again.
I never said anything about dividends. How did you come up with the idea that I'm "incorrectly conflating dividends?"
I'd also love to know how I "incorrectly conflated" wealth, job creation, the stock market, earned income, or capital gains. You just seem to have written a list of terms that happen to be what we are talking about.
jackbird: I also get limited liability with an LLC, but that has pass-through taxes. It's a "separate entity" by your definition, but the money I take out of it is only taxed a single time.
gstrickler: Speculation and belief of *income*! How hard is this for you to comprehend? The worth of my stock is what someone else is willing to pay for it, due to how much the corporation is perceived to be worth (based on what people think its income will be, and based on what its current assets *are*).
i_ate_god: Stock prices are related to perceived worth of a company. Perceived worth is directly affected by what a company has, and what people believe it will make. I'll bet I can make a company, where *all* it does is hold 5 million dollars, and sell 5 million shares for just under a dollar each (probably 95 to 99 cents, due to risk, etc) (and let's say this isn't an IPO. I already have $5 million). If that money disappears, guess how much those shares are then worth.
Oh, but I can! assuming x% is the percent that I own. All I have to do is sell some of my shares, and since the company made a profit in your example, the price of my shares probably went up (excluding external changes), meaning I can hold just as much money in the company as before, but still take my share of the profit. Unfortunately for me, however, the rest of the investors decided to reinvest their earnings, so even though I have just as much money invested (after selling shares), I now own a smaller percentage.
Isn't it great how this works?
Just to clarify, "and will never make any money" in my example is known by any and all hypothetical potential investors.
Wow. Just... wow.
Read the last sentence in my previous post. It'll clear everything up for you.
If you're still left thinking that companies that do not currently have any assets, and will never make any money, can possibly have a positive stock price, then I don't know what to do for you. Perceived value == how much people think it will make in the next X years (exercise left up to the investor) + what it currently has.
What you're forcing yourself to perceive is that somehow the owners of a company are actually being paid by the company. That isn't the case. The owners of a company *are* the company. The money isn't exchanging hands a second time. It goes to the company, which is made up of owners of said company. Yet somehow it gets taxed twice.
If you're talking about buying stock in a corporation, the corporate income (or income tax) has nothing to do with it.
You're kidding, right? If Apple were to throw away $50 billion of its cash, what do you think would happen to the stock price? I'll bet its market capitalization will go down by about 50 billion dollars (excluding perception changes due to this extreme change). Corporate earnings do in fact *directly* affect stock prices. In fact current assets plus the estimated next X years of earnings are the best way to decide what a company should be worth.
No. Capital gains tax is a form of double taxation. I don't know how you still don't get it. Let's say I own a corporation. When my corporation earns money, it gets taxed. Since I own the corporation, that money is mine. The value of my stock goes up because the corporation now has more cash. I then pay additional taxes, even though my money hasn't changed hands a second time.
You're still misinterpreting things. When you get pizza, that money is exchanging hands (again). Therefore it gets taxed. When I pay capital gains tax, that money is not exchanging hands a second time. It was taxed when it went to the company (which I own a part of, and is at that point mine, since this money affects how much my investment is worth), then, without exchanging hands (it's already mine), it gets taxed again.
Your pizza example is extremely flawed. Corporate earnings are taxed. What's left over *belongs* to the investors. The corporation isn't paying the investors--the investors *are* the corporation. They own it. Look at how taxes in an LLC work (it's a beautifully simple system!). What I think would make much more sense is this money being taxed once. Either as personal income tax for the investors (like in an LLC), or as corporate income tax. Having both allows people like you to misunderstand what's really happening.
*Corporate* income tax plus capital gains. The corporation that you invested in is taxed on its earnings. Those earnings are where your gains come from.
It IS taxed at a higher rate. It's taxed twice. Just because one of the two taxes is 15% doesn't mean that the money wasn't already taxed at a much higher rate (usually roughly 35%).
And besides, do you really want to encourage people to put their money under a mattress instead of investing it in companies that give people jobs?
I'm not sure where I said any of what you just said I said. You pay capital gains tax on what your long term investments earn (which was already taxed as corporate income tax).
correction. It isn't quite 50% now, but will be if Obama gets his way. Right now it's about 45% for long term investments.
Capital gains is NOT the same as income tax. You are comparing apples and oranges. If you want to compare apples to apples, look at capital gains PLUS corporate income tax. It amounts to over 50%, except for companies that are in bed with the white house (GE).
Look at the line that I quoted. The point I'm making is that the wording shouldn't take any figuring-out. If they just state the facts, they will have more credibility. Making such a big effort to find the perfect wording makes it seem as though the facts don't back up their claims.
K, so they are trying to fix someone else's mistake. But they still shouldn't be trying to figure out how to make anything seem like anything. They should just state the facts. Period. The wording shouldn't take any figuring-out.