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Health Care & Environment
11.15 The long read: The plastic backlash: what's behind our sudden rage – and will it make a difference? [the world wants to throw-up...]
11.15 Claws out: crab fishermen sue 30 oil firms over climate change [workers are waking-up...]
11.15 Trump administration to cut air pollution from heavy-duty trucks [behaving ignorantly again...]
11.12 This Land is Your Land: The Zinke effect: how the US interior department became a tool of industry [behaving ignorantly again...]
11.11 Trump responds to worst fires in California’s history by threatening to withhold federal aid [behaving ignorantly again...]
11.11 Interior department sued for ‘secretive process’ in at-risk species assessment [behaving ignorantly again...]
11.11 Keystone XL pipeline: judge rules government 'jumped the gun' and orders halt [behaving ignorantly again...]
News Media Matters
US Politics, Policy & 'Culture'
11.15 Democrats Won Big. Can They Go Bold, Too? [it's about suppressing the influence and leadership by Republican-like Democrats who counsel 'íncremental' (no) change, such as Nancy Pelosi, Steny Hoyer, Hillary Clinton, Chuck Shumer and Joe Biden]
11.15 Pentagon Officials Forced to Make Fewer Public Appearances to Avoid Provoking Trump [...by revealing Trump's huuuge ignorance]
11.15 REPUBLICANS USED A BILL ABOUT WOLVES TO AVOID A VOTE ON YEMEN WAR [if there are 'defense industry' profits to be made—including congress-critter insider-trading—and political 'donations' to be had, we mustn't stop killing innocent civilians!]
11.09 Trump administration blocks asylum claims by those crossing border illegally [Making America Less Great Again...]
11.14 The Guardian view on Yemen’s misery: the west is complicit [WAR CRIMES]
11.10 US stops refuelling of Saudi-led coalition aircraft in Yemen war [But there are a few children still alive. It's too soon!]
Economics, Crony Capitalism
11.15 The Earth is in a death spiral. It will take radical action to save us [fossil fuel burning, un-recyclable plastic production/use and methane gas release must cease ASAP.]
International & Futurism
11.15 Cuba to pull doctors out of Brazil after President-elect Bolsonaro comments [terms must be negotiated for fairness to Cuba's health professionals without disruption of healthcare for Brazil's poor]
11.14 'Appalling' Khashoggi audio shocked Saudi intelligence – Erdogan [Exposing a psychopath?]
The Annual Bailout of ‘Investors’
Monday, 26 January 2009
Another huge bailout will happen on April 15, when, thanks to a generous tax code provision, the Treasury picks up part of the tab for losing bets on Wall Street.Much huffing and puffing on the Potomac about a $700 billion bailout. Not a peep about one that could be just as big.
Every spring, thanks to a generous tax code provision, the Treasury picks up part of the tab for losing bets on Wall Street. Given last year’s historic plunge, these personal bailouts might wind up rivaling TARP’s $700 billion—and there’s no dollar cap or cut-off date.
It all adds up to a looming hit on the Obama Administration. No matter how large the losses realized in 2008, no matter how long it takes investors to recoup, Uncle Sam will be sharing the pain. Deeply sharing: up to 35 percent depending on the loser’s tax bracket, or 39.6 percent if Obama ends the Bush tax cuts for higher-income Americans.
Capital loss offsets are the tax code provision that soothes investor wounds. When the year’s trades are reported on tax returns, losses offset taxable gains dollar-for-dollar. If net losses exceed gains, the loss offsets taxable income—by up to $3,000—and provides another tax saving.
Offsets never lose their tax-reducing power. Losses greater than $3,000 (as last year’s probably were) are carried forward indefinitely until they’re used up.
At 15 percent, the tax on long-term capital gains is low compared to the rate on ordinary income like wages. With capital loss offsets, the deal is even sweeter on the downside. While gains are taxed at less than half the top rate, losses are written off at 100 percent across the board. Could losing come any closer to winning?
Yes, say Senator John McCain and Michael Boskin, a former chairman of the Council of Economic Advisers. Senator McCain has proposed raising the capital loss offset against ordinary income from $3,000 to $15,000 per year for 2008 and 2009. Boskin would up the number to $20,000.
Is there good reason for the government (read: taxpayers) to subsidize investment losses? Might the tax system be fairer, and rates perhaps lower, if these subsidies were curbed or even ended?
All of which raises some interesting questions. Who profits from these write-offs? Is there good reason for the government (read: taxpayers) to subsidize investment losses? Might the tax system be fairer, and rates perhaps lower, if these subsidies were curbed or even ended?
The first question is easy. Roughly 50 percent of Americans own no stocks, so offsets hold nothing for them. Of the half who do own stocks, most have their portfolios in tax-sheltered retirement accounts. They don’t get those write-offs, either.
That leaves a fairly narrow layer, those affluent enough to have non-retirement stock portfolios. In other words, the benefits of capital loss offsets flow solely to those who have ample capital. (If this hints at class warfare, here it is served neat by Warren Buffett: “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.”)
Real investors have a strong claim to tax breaks. “Investors” have a frail claim, and it’s time that Congress caught on.
As to whether subsidies for investors are a sound government policy, sure they are—but it’s foolish to hand out tax breaks just for playing the market. Real investors, a thimbleful of the total, put seed money into initial public offerings (IPOs) and follow-on offerings. They grow jobs and grow businesses. The rest of us play the game at the tables down on Wall Street: we grow portfolios (if we’re lucky), nothing more. Real investors have a strong claim to tax breaks. “Investors” have a frail claim, and it’s time that Congress caught on.
Tax fairness—as always—is in the eye of the 1040 filer. Still, facts matter. Capital loss offsets benefit the few at the expense of the many. Like all tax deductions, they’re paid for by taxpayers in the aggregate—through higher rates, fewer government services, or both. Taxes would be fairer without offsets. Short of repeal, Congress could set a dollar or percentage limit (a type of which was on the books years ago). At the least, the offset against ordinary income should be scrapped.
Except for real investors, who are 100 percent deserving of 100 percent offsets (and an income offset too). If they lose more than $3,000 in a year, Michael Boskin’s $20,000 income offset is a starting point. Do I hear $30,000?
© Copyright 2009 Gerald E. Scorse
Gerald E. Scorse helped pass a bill that requires basis reporting of capital gains. His op-eds on investment taxes have appeared in big-city dailies such as The New York Times, as well as in The Baltimore Chronicle.
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This story was published on January 26, 2009.