Obama proposes no capital gains tax on qualified small business stock(startupcompanylawyer.com) |
Obama proposes no capital gains tax on qualified small business stock(startupcompanylawyer.com) |
I'm curious to know how this compares to other countries; could HNers from elsewhere please reply to this with the details from where they are?
and, more generally en.wikipedia.org/wiki/Capital_gains_tax
Briefly, in the US cap gains are taxed at a special rate separate from regular income; if you hold the associated asset for at least 6 months, this rate only applies to half the capital gains, and if you fall into a low enough income bracket, your rate is significantly reduced.
http://en.wikipedia.org/wiki/Capital_gains_tax
http://www.globalpropertyguide.com/Asia/Hong-Kong/capital-ga...
it would be really interesting (for the people migrating to other countries for better opportunities) if someone compares cost of living in different countries based on their CGT ... may be this would really change the whole scenario ...
for example if a family wants to decide between new-zealand and canada and lets say that their total saving (as per history) is around 10 to 20% which they regularly invest in real-estate/stock then CGT can change their decision or help them to make decision; of-course there are other factors such as job opportunities, cost of living etc. But for large amount of immigrants CGT plays a big role after they settle down in a new country.
Still, since I've spent the last few months hearing rumors about a bill allowing the president to seize any business that "threatens the economy," this is welcome news indeed.
"To qualify as a small business, the corporation, when the stock is issued, may not have gross assets exceeding $50 million (including the proceeds of the newly issued stock) and may not be an S corporation."
Looks like we're out, guys..
I imagine if they didn't exclude such, you'd have a rash of LLPs turning into C-Corps; not sure what other negative consequences they're hoping to prevent.
The cynic in me thinks that Obama recognizes startups and small businesses will be the only bright points in the economy, so he wants to do something to make it appear he helped them, or possibly even was the primary reason for their success, by the time 2012 rolls around. However, wanting to be on the winning team isn't a bad thing in public policy.
currently you pay capital gains (28%) on 50% of the worth of sold stock. this proposal would eliminate that if the stock is held for 5 years?
correct?
if you qualify for small business stock + 5 years discount currently, you could pay capital gains (15%) on 50% of the stock, and AMT (28%) on the remaining 50%, giving an average tax rate of 21.5%, worse than existing capital gains, which clearly doesn't make sense, so no one does it.
under the new proposed system, if qualified, there would be NO capital gains on 100% of the stock, AND it would not be subject to AMT, meaning that the gain is completely tax free (minus state tax, of course).
the only restriction would be that you have to acquire stock in the company when it is worth less than $40M (easy) and hold it for 5 years (harder).
Not really.
Most of us aren't accredited investors, so we can't buy stock in small companies without starting them, working for them, or being related to the founders.
Reduced taxation on small biz stock will make successful small biz more profitable, so it's a big deal for angels, VCs, and their limited partners, but because it doesn't increase the size of the investor pool, it just helps their returns.
This may have a modest effect on the number of funded small biz, but it won't help most of us.
You'd think that the super-genius' in the Obama administration would know about the accredited investor stuff.
I'm the classic saver. I'm the individual who they want to spend more right now.
I'm saving because it's not a certainty that my contract will be renewed right now. I could very well end up living off the savings I'm accumulating right now.
If you reduce my payroll tax, I won't spend more. I'll save more. ___
If someone is unemployed, reducing the payroll tax is not going to change anything.
If someone is insecurely employed, they aren't going to change their spending habits, they will change their savings habits. There is no gain. That's most everyone right now!
Further, why is it going to help for me to buy more Saudi, Mexican, and Venezuelan gas, or buy more Chinese goods? It seems to me that providing a sales tax break for goods and services originated in the United States would provide a much better economic lift. (I don't know if this would be legal, however.)
So you end up sponsoring US companies that were not capable to compete with more efficient foreign companies. Which is in itself a more interesting problem. Most European countries have as high, or higher, standard in working conditions (and TAXES!) and they do have positive trade balance.
Does it really seem like a wise decision to make US produced products less attractive on the global market, for the hope that tax cuts on domestic products will match up, and then some, with increased income tax from the new jobs?
An alternative is to instead use taxes to set up better public transport, so the time-and-cost-to-get-to-work radius around companies increase. Making it both easier to find the right competence (larger area, more people to chose from) and making more real estate close (time-wise) to the city, making the cost of living lower.
I'm assuming that the form of savings that you pursue is not "stuffing money under the mattress", but to put the money in the bank, or invest in equities or bonds or commodities.
If you invest in commodities, that is of course spending on commodities.
If you invest in stocks or bonds, you're providing capital to other companies, who will then spend it. This is good, but since some of their spending will be on facilities, it may not be the kind of spending we want (i.e., consumer good). On the other hand, some of it may go to paying for employees, which is obviously a very good thing, and goes to decreasing the uncertainty that you're concerned about.
And if you put it in the bank, it's going to be loaned out to either consumers for their own spending, or to business as discussed above. (caveat: so far this year, banks have tended to increase their reserves rather than increase lending. I think that phase is done, though)
Also, I'm a big fan of a revenue neutral tax shift from payroll to energy/carbon.
I'm not sure that the public transport makes a difference with our car culture and low population densities. I can't really think of a good way to do a subway in LA, for example, though they tried.
What is the reasoning behind preventing people from investing into companies? Is it just to keep people from being swindled? It seems off to me.
That's the stated reason. Your guess is as good as mine as to whether it's a real reason or even the only reason.
(And I'm not convinced banks are finished increasing their reserves. Wells Fargo is still in the danger zone after acquiring Wachovia, as one example.)
The Austrian school says that recessions occur when the economy gets over-invested in some area. The recession occurs as we recognize that what we've invested in is not worth as much as we thought ("hey, these are just regular crackers!"). Then the values roll back as we get out of that dead-end while moving our investments into better values.
To the extent that this is true, our government is not helping. They're spending with abandon, but direction of the spending is either wildly shotgunned, or politically correct. With the decisions in the hands of the people and corporations making up the market (I think I can see you cringing as I say that), the processing of transitioning will in all likelihood be faster and much more efficient.
A subsidy to small businesses that didn't exclude service businesses would have the effect of making more people want to work for service companies. Which is fine, except that they produce negligible exports. If you're selling lightbulbs, you make money in India by selling them there; if you're a lawyer, the way you make money in India is by hiring an Indian lawyer in India, and somehow convincing this lawyer to give you a fraction of his billings (so most of the money stays behind).
Given the potential trade deficit problems, I suspect Obama wants to focus on subsidizing businesses that can export.
Also, the income of a service company is mostly going into the pockets of the service providers, and if those service providers are well-paid then they're more likely to save their marginal dollar instead of spending it. So from a Keynesian point of view, this is not the kind of business you want to throw money at during a recession.