Speaking very generally. Capital Gains taxes are paid on your net capital gains. i.e. if you lost $20 on the Euro but gained $20 from selling stock, you would net out at zero, and pay nothing. If you have a net loss some countries allow you reduce your income for tax purposes – normally with a cap. Most countries will allow you to carry over your loss for a couple of years to cover any (if there are any) future capital gains
Let’s focus on the argument that deflation does not steal anything. If deflation increases the value of your savings today, mathematically it must reduce the value of investments that pay in the future.
Nominal Return = Real Return + Inflation/(deflation).
Run though this simple though experiment. Let’s say you have a project that will generate a real return of 5% but you have deflation of 10%. If you risk your capital and time you would get a real 5.5% ($95/$90) return. If you had just sat on your cash you would have gotten a 11% return (100/90).
Normally deflation numbers are not that big, but I can point to a few historical examples in the 19th and early 20th century. However, even a low rate of deflation will lower the real rate of return. Take a look at Japan. Modest deflation for 20 years has led to underinvestment for that period. It is weird to see a country where the children have accumulated less capital then their parents.
It's as if you owned one kilogram of gold, and a few years later the government says "well, now you have 2.2 pounds of gold, so you owe us taxes on the 120% gain"
.
Well, it is kind of like that.
Let’s say you buy 1oz of gold for $1,000. This is your costs basis. The $1,000 has a real value – anything you like – let’s say 1 custom suit.
The next day you have inflation of 100%. The real value of the gold stays at $1,000 – it can still but 1 custom suit. However, it’s nominal value is now $2,000.
You then sell the 1oz of gold. You now have made a “profit” of $1,000 on which you have to pay capital gains. If the capital gain tax was 50%, you would pay taxes of $500, leaving you with $1500 – which is now enough to by 3/4s of a suit. You have a loss of real value because you are interested in real returns, not nominal. The higher the inflation number the lower your future value will be.
FVIF (Future Value Interest Factor) = (1+r)^n (1+T) + tcg - tcg (1-B)
r*=annual after tax return
T*= effective capital gain tax = tcg (1-pi-pcg-pd)/(1-tipi-tdpd-tcppcg)
B= value cost / current market value ( = 1 if the beginnin value is the same as the value at purchase)
pi = portion of return received in interest
ti = tax rate for interest
It depends on the context and thus which accounting treatment you pick.
The default mode is to treat it as any other type of asset. If it is plain vanilla investment.
However, different rules kick in when you are an active trader, hedging risk, have foreign operations or sales offices, etc. I will agree that this is common, but it only makes sense if we start dragging in other unrelated accounting principles.
o.k. – but what is your point? What are you trying to say? You can hedge away most of that risk in real life.
Inflation steals value from past hard work. Deflation steals value from future work. And you can’t have zero inflation.
As you point out, the higher the inflation rate the higher the effective capital gains tax is. Right now in the US, the cap gain rate is lower than the ordinary income rate, so it takes 5 to 10 years for the 2 tax rates to become equivalent.
What would you suggest? And why would you favor one group and income type over another? Index Capital Gains to CPI? That is a idea I might favor – it would treat all income types on a more equal basis but it would make bookkeeping more complex.
Let me rephrase that: I am going to guess both but that is based on the assumption that Depardieu is semiretired and most of his income is from investments.
France has cranked up the income tax on employment and investment income.
However, wealth taxes tend to have a higher tax drag then either income taxes or cap-gain taxes. Much depends on the specifics of French tax law and Depardieu investment goals – which I don’t know.
There is the old quip for business that advertisers always wastes 50% of you money – the problem is figuring out which 50%. So, on one hand advertisers can better target ads – so less money is wasted so few advertising dollars. On the other hand you can now target your ads and thus charge more.
IIRC, over the past 20 years, less money as a percentage spent on advertising, has gone towards T.V. (broadly defined to include all streaming services.). Data is a few years old so take it with a grain of salt.
For stocks one normally uses costs bases on individual tax lots and not average price.
The rule of thumb is if you can identify the costs acquiring the asset. For a stock purchase you get a confirm slip – so you can identify. For large projects you should be able to identify your costs. It is when you are running a business with lots of inputs and outputs and it is not worth the effort that one can use average costs.
Cap gains start when your purchase something, not when you manufacture it. Normally - there are exceptions. However, if you sell it under 1 year you pay taxes as if it were "ordinary" income.
And yes, if you mined and sold it immediately, your cap gains would be zero. However, you would have generated income and would have to pay taxes on that. Think of it as manufacturing.
Some states have a yearly registration tax based on the value of cars and boats. Some states do it based on weight, number of axis, etc. But no matter how the taxes are calculated they are 1. all about the same and 2. go towards roads, boat docks, etc. So it is more of a method of calculation rather than a true wealth tax.
I will point out this was one of the ways that Al Capone was nailed. He declared a very low personal income yet lived a lavish lifestyle. Questions were asked.
To follow up, and make the point even more explicitly, the same logic holds for foreign currency. if I hold Euros for more than a year and the Euro gets strong, I have to pay cap gains on that profit.
Except for one point, I am not going to argue with you too much. I am not a huge fan of these types of lawsuits. Just laying out how it works.
Lastly institutional investors are also professional investors, and should not be investing unless they have believe they have appropriate governance and so forth,
I will strongly disagree with you on this point.
First, many shareholder suits (but not this one) is based on fraud, lies, or theft by upper management. You can put in as many safe guards as you like, but if the top cheats there are issues. Think Enron, MCI World Com, etc. There was not a whole lot of money to claw back but the threat helps focus everybody.
Second, small and institutional shareholders should be treated the same. There should not be one standard for bamboozling a individual and a “sophisticated” investor.
The logic of class action lawsuits has been debated.
If you owned a share of IBM during the time period, you get X dollars - or probably a fraction of a cent. You will be paid from the earnings of the current shareholders. So if you owned stock then and today you would be paying oneself less the lawyer fees.
Suing the CEO, board members, etc. is debatable. They have millions, not billions. They have insurance to cover losses.
So who in the Louisiana Sheriff's... Fund decided it was a good idea to sue... IBM?!
I am going to guess nobody in the fund. A law firm would have come up with the idea to sue IBM and then would have searched for a plaintiff . Anybody who held stock in IBM, which is almost everybody would do. However, the more sympathetic the better. I am going to guess that a innocent unsophisticated rural police officer's widowed could play the part.
If the lawyers are being paid on a contingent fee – that is a percentage of the winnings., all the Louisiana Fund has to do is look pretty. They don't have to present any specific documents or front any cash.
Yawn. "Louisiana Sheriffs' Pension & Relief Fund" is barely a institutional investor even if it is one. Most of the work would be farmed out.
Besides, this is a class action lawsuit by lawyers hoping to hit the lawsuit lottery. What they need is a unrelated party to be the lead plaintiff. Preferable someone sympathetic to pull the juror’s heartstrings. Windows and orphans do well. If you can't get one of them but a “aw shucks we are a simple pension fund helping good people that was taken by the big bad Wall Street types” person works just as well.
Look, I have seen arguments from both sides. It is all based on assertions – like your post. Repeating old arguments is going to do it for me. Microsoft is going to slant one way, the city is going to crow on how much money it saved while burying the skeletons However, we now have a real live case study. We can see how theory lines up with facts which is why I am interested in getting the numbers. I am interested in how they get the numbers. As Friday said, “Just the fact please.”
As to your points....
1: You are right in that you get what you pay for, but if the metric is dollars then you can't buy a Cadillac even if it is better then a Chev. You have got to justify it, which I think is a reasonable request and probably doable.
2. Training is not a bullshit reason. The leap from Office 97 to 2003 is less of a jump then from Office 97 to OO. I know this first hand supporting a lot of smart but not techie accountants. Heck, I even know of one shop that moved from Linux to Windows for that very reason – but they were a special case. It is a non-profit festival operation where the staff jumps from 5 to 60 for 1 month every year. It always saddens me to see arts major struggle with computers. They are, after all, college material.
3. Yes, OO is 95% compatible with Excel formats, It is the last 5% that causes me grief. If you know a good way for OO to run VBA macros I would love to hear it. And then there is always the power user who pushes the limits with weird and stupid functions. And I have had formatting issues when switching formats - but I have not done any serious conversions in the past 5 years. Have things changed?
4. I have rarely shared databases but power point presentations get e-mailed frequently - usually after each meeting as notes.
Well, that is part of the appeal. It’s supposed to rapidly cool your coffee down to 140 degrees – the perfect tempura to drink it at – and hold it at that temperature.
Do we know that they saved money overall? I poked around the article but I couldn’t find anything.
From what I have read in the past, conversions like this did not save money. The reduced front end costs were offset by higher backend costs. Linux admins have higher salaries then windows admins. Front end staff needs to be retrained and have to spend more time with outside vendors who are on Microsoft Office. Etc.
I really hope that the conversion does save money and I think the open data formats add value. I just want to know how they measured the cost savings.
I have seen him say that he would not invest in technology companies because he couldn’t understand how they would make a profit – as in lack of knowledge verse a conclusion that it could not make money.
If you look at his investment philosophy, it is about investing in long established boring business where he can understand the cash flow. He has stated that he does not have the technical chops to wade into the tech market sector.
Let me rephrase that. We are not talking about maximizing your wealth or upside potential. What we want to do is to match our liabilities to our assets. Our liability is a guaranteed payment – It is very low risk - We don’t have the option of not paying it – so we must minimize downside risk. The only asset that offsets that liability are TIPS – a very low risk asset and hence a very low reward security.
Deterministic models tend to simplistic and leads to optimistic results. Stocks have an average return of 10%. Assuming a normal bell curve, this translates into a 7% geometric return. But it’s not, so returns will be a bit lower than that.
What you want to use is a monte carlo model , you want to factor in how you want to put together a diversified portfolio, how you are going to rebalance, taxes, etc.
No, GMAC also went bankrupt. IIRC, before GM. After GMAC was spun off they renamed themselves as Ally Financial. It was heavily invested the housing market.
Slashdot Mirror
Speaking very generally.
Capital Gains taxes are paid on your net capital gains. i.e. if you lost $20 on the Euro but gained $20 from selling stock, you would net out at zero, and pay nothing. If you have a net loss some countries allow you reduce your income for tax purposes – normally with a cap. Most countries will allow you to carry over your loss for a couple of years to cover any (if there are any) future capital gains
Let’s focus on the argument that deflation does not steal anything. If deflation increases the value of your savings today, mathematically it must reduce the value of investments that pay in the future.
Nominal Return = Real Return + Inflation/(deflation).
Run though this simple though experiment. Let’s say you have a project that will generate a real return of 5% but you have deflation of 10%. If you risk your capital and time you would get a real 5.5% ($95/$90) return. If you had just sat on your cash you would have gotten a 11% return (100/90).
Normally deflation numbers are not that big, but I can point to a few historical examples in the 19th and early 20th century. However, even a low rate of deflation will lower the real rate of return. Take a look at Japan. Modest deflation for 20 years has led to underinvestment for that period. It is weird to see a country where the children have accumulated less capital then their parents.
It's as if you owned one kilogram of gold, and a few years later the government says "well, now you have 2.2 pounds of gold, so you owe us taxes on the 120% gain"
.
Well, it is kind of like that.
Let’s say you buy 1oz of gold for $1,000. This is your costs basis. The $1,000 has a real value – anything you like – let’s say 1 custom suit.
The next day you have inflation of 100%. The real value of the gold stays at $1,000 – it can still but 1 custom suit. However, it’s nominal value is now $2,000.
You then sell the 1oz of gold. You now have made a “profit” of $1,000 on which you have to pay capital gains. If the capital gain tax was 50%, you would pay taxes of $500, leaving you with $1500 – which is now enough to by 3/4s of a suit. You have a loss of real value because you are interested in real returns, not nominal. The higher the inflation number the lower your future value will be.
The numbers that I chose were sky high but it is useful to illustrate a point. If you want to do the math, this is what I turned up in 5 minutes of searching on Google: http://quizlet.com/11698330/cfa-3-r11-taxes-and-private-wealth-mgmt-flash-cards/
FVIF (Future Value Interest Factor) = (1+r)^n (1+T) + tcg - tcg (1-B)
r*=annual after tax return
T*= effective capital gain tax = tcg (1-pi-pcg-pd)/(1-tipi-tdpd-tcppcg)
B= value cost / current market value ( = 1 if the beginnin value is the same as the value at purchase)
pi = portion of return received in interest
ti = tax rate for interest
It depends on the context and thus which accounting treatment you pick.
The default mode is to treat it as any other type of asset. If it is plain vanilla investment.
However, different rules kick in when you are an active trader, hedging risk, have foreign operations or sales offices, etc. I will agree that this is common, but it only makes sense if we start dragging in other unrelated accounting principles.
o.k. – but what is your point? What are you trying to say? You can hedge away most of that risk in real life.
Inflation steals value from past hard work. Deflation steals value from future work. And you can’t have zero inflation.
As you point out, the higher the inflation rate the higher the effective capital gains tax is. Right now in the US, the cap gain rate is lower than the ordinary income rate, so it takes 5 to 10 years for the 2 tax rates to become equivalent.
What would you suggest? And why would you favor one group and income type over another? Index Capital Gains to CPI? That is a idea I might favor – it would treat all income types on a more equal basis but it would make bookkeeping more complex.
Let me rephrase that: I am going to guess both but that is based on the assumption that Depardieu is semiretired and most of his income is from investments.
France has cranked up the income tax on employment and investment income.
However, wealth taxes tend to have a higher tax drag then either income taxes or cap-gain taxes. Much depends on the specifics of French tax law and Depardieu investment goals – which I don’t know.
Maybe. It has been a losing game so far.
There is the old quip for business that advertisers always wastes 50% of you money – the problem is figuring out which 50%. So, on one hand advertisers can better target ads – so less money is wasted so few advertising dollars. On the other hand you can now target your ads and thus charge more.
IIRC, over the past 20 years, less money as a percentage spent on advertising, has gone towards T.V. (broadly defined to include all streaming services.). Data is a few years old so take it with a grain of salt.
For stocks one normally uses costs bases on individual tax lots and not average price.
The rule of thumb is if you can identify the costs acquiring the asset. For a stock purchase you get a confirm slip – so you can identify. For large projects you should be able to identify your costs. It is when you are running a business with lots of inputs and outputs and it is not worth the effort that one can use average costs.
As tax systems go, the US requires one of the highest levels of self-reporting. Think small business and all of those deductions.
I am not saying a lot of information is not reported - just the ratio.
Cap gains start when your purchase something, not when you manufacture it. Normally - there are exceptions. However, if you sell it under 1 year you pay taxes as if it were "ordinary" income.
And yes, if you mined and sold it immediately, your cap gains would be zero. However, you would have generated income and would have to pay taxes on that. Think of it as manufacturing.
It's high taxes in general, both on income and wealth.
But never investments.
All states have a property tax for land.
Some states have a yearly registration tax based on the value of cars and boats. Some states do it based on weight, number of axis, etc. But no matter how the taxes are calculated they are 1. all about the same and 2. go towards roads, boat docks, etc. So it is more of a method of calculation rather than a true wealth tax.
I will point out this was one of the ways that Al Capone was nailed. He declared a very low personal income yet lived a lavish lifestyle. Questions were asked.
To follow up, and make the point even more explicitly, the same logic holds for foreign currency. if I hold Euros for more than a year and the Euro gets strong, I have to pay cap gains on that profit.
Except for one point, I am not going to argue with you too much. I am not a huge fan of these types of lawsuits. Just laying out how it works.
Lastly institutional investors are also professional investors, and should not be investing unless they have believe they have appropriate governance and so forth,
I will strongly disagree with you on this point.
First, many shareholder suits (but not this one) is based on fraud, lies, or theft by upper management. You can put in as many safe guards as you like, but if the top cheats there are issues. Think Enron, MCI World Com, etc. There was not a whole lot of money to claw back but the threat helps focus everybody.
Second, small and institutional shareholders should be treated the same. There should not be one standard for bamboozling a individual and a “sophisticated” investor.
The logic of class action lawsuits has been debated.
If you owned a share of IBM during the time period, you get X dollars - or probably a fraction of a cent. You will be paid from the earnings of the current shareholders. So if you owned stock then and today you would be paying oneself less the lawyer fees.
Suing the CEO, board members, etc. is debatable. They have millions, not billions. They have insurance to cover losses.
So who in the Louisiana Sheriff's ... Fund decided it was a good idea to sue ... IBM?!
I am going to guess nobody in the fund. A law firm would have come up with the idea to sue IBM and then would have searched for a plaintiff . Anybody who held stock in IBM, which is almost everybody would do. However, the more sympathetic the better. I am going to guess that a innocent unsophisticated rural police officer's widowed could play the part.
If the lawyers are being paid on a contingent fee – that is a percentage of the winnings., all the Louisiana Fund has to do is look pretty. They don't have to present any specific documents or front any cash.
Yawn. "Louisiana Sheriffs' Pension & Relief Fund" is barely a institutional investor even if it is one. Most of the work would be farmed out.
Besides, this is a class action lawsuit by lawyers hoping to hit the lawsuit lottery. What they need is a unrelated party to be the lead plaintiff. Preferable someone sympathetic to pull the juror’s heartstrings. Windows and orphans do well. If you can't get one of them but a “aw shucks we are a simple pension fund helping good people that was taken by the big bad Wall Street types” person works just as well.
Look, I have seen arguments from both sides. It is all based on assertions – like your post. Repeating old arguments is going to do it for me. Microsoft is going to slant one way, the city is going to crow on how much money it saved while burying the skeletons However, we now have a real live case study. We can see how theory lines up with facts which is why I am interested in getting the numbers. I am interested in how they get the numbers. As Friday said, “Just the fact please.”
As to your points....
1: You are right in that you get what you pay for, but if the metric is dollars then you can't buy a Cadillac even if it is better then a Chev. You have got to justify it, which I think is a reasonable request and probably doable.
2. Training is not a bullshit reason. The leap from Office 97 to 2003 is less of a jump then from Office 97 to OO. I know this first hand supporting a lot of smart but not techie accountants. Heck, I even know of one shop that moved from Linux to Windows for that very reason – but they were a special case. It is a non-profit festival operation where the staff jumps from 5 to 60 for 1 month every year. It always saddens me to see arts major struggle with computers. They are, after all, college material.
3. Yes, OO is 95% compatible with Excel formats, It is the last 5% that causes me grief. If you know a good way for OO to run VBA macros I would love to hear it. And then there is always the power user who pushes the limits with weird and stupid functions. And I have had formatting issues when switching formats - but I have not done any serious conversions in the past 5 years. Have things changed?
4. I have rarely shared databases but power point presentations get e-mailed frequently - usually after each meeting as notes.
Well, that is part of the appeal. It’s supposed to rapidly cool your coffee down to 140 degrees – the perfect tempura to drink it at – and hold it at that temperature.
Do we know that they saved money overall? I poked around the article but I couldn’t find anything.
From what I have read in the past, conversions like this did not save money. The reduced front end costs were offset by higher backend costs. Linux admins have higher salaries then windows admins. Front end staff needs to be retrained and have to spend more time with outside vendors who are on Microsoft Office. Etc.
I really hope that the conversion does save money and I think the open data formats add value. I just want to know how they measured the cost savings.
I would like to see a cite for that.
I have seen him say that he would not invest in technology companies because he couldn’t understand how they would make a profit – as in lack of knowledge verse a conclusion that it could not make money.
If you look at his investment philosophy, it is about investing in long established boring business where he can understand the cash flow. He has stated that he does not have the technical chops to wade into the tech market sector.
Let me rephrase that. We are not talking about maximizing your wealth or upside potential. What we want to do is to match our liabilities to our assets. Our liability is a guaranteed payment – It is very low risk - We don’t have the option of not paying it – so we must minimize downside risk. The only asset that offsets that liability are TIPS – a very low risk asset and hence a very low reward security.
I have, and I would be careful about doing that.
Deterministic models tend to simplistic and leads to optimistic results. Stocks have an average return of 10%. Assuming a normal bell curve, this translates into a 7% geometric return. But it’s not, so returns will be a bit lower than that.
What you want to use is a monte carlo model , you want to factor in how you want to put together a diversified portfolio, how you are going to rebalance, taxes, etc.
No, GMAC also went bankrupt. IIRC, before GM. After GMAC was spun off they renamed themselves as Ally Financial. It was heavily invested the housing market.