Big Red Car here in the ATX which is enjoying some convertible weather. I am headed out to the Hill Country this afternoon and why not?
Folks up north, please don’t hate me — the azaleas will be blooming in about five weeks here in Texas. Always coincides with Spring Break.
So The Boss has been digging into the issue of taxes. Taxes are an important consideration for those in the startup business as they hope to ultimately monetize their work and investment. In the course of doing this they will likely be subject to capital gains. Not a bad thing.
Capital gains
Before we launch into the subject of capital gains, it may be useful to remember that invested capital has likely been taxed already at least once. It was either ordinary income or capital gain in an earlier life.
Capital gains are vastly different from ordinary income. They are the fruits of invested capital (or sweat) allowed to grow and prosper over a long period of time. Entrepreneurs, founders and investors understand this. They live it.
Capital gains typically can only be converted to cash by a sales transaction which normally has the effect of paying the founders off and turning them out to pasture –granted a nice pasture as they will have a pocket full of cash.
The government, never a real partner in building the business, is now your partner as you divide the spoils.
Taxation rates
Before President Obama came into office the rate of taxation on capital gains was 15%. You can blame that on George Bush also.
As part of the Tax Control Act of 2011 (enacted in 2012) which brought us higher taxes and sequestration, President Obama raised the capital gains rate to 20%.
As part of Obamacare, capital gains were subjected to a 3.8% surcharge.
Now the President proposes to raise the capital gains rate to 28% while maintaining the 3.8% Obamacare surcharge. This would be a total tax rate of 31.8%. He proposed this in his latest budget submittal.
Review — Bush 15%, Obama 20%, Obama 23.8%, Obama 31.8%.
The President proposes to more than double the capital gains rate in six years. The 23.8% rate has barely taken root when the President wants to raise the capital gains rate yet again.
The economy
The national economy has been in a recession since President Obama has held office. There is a perverted tendency to spike the ball given how “great” the economy is going. You would have to have a job in the White House to actually believe that.
The labor force participation rate — as low as 1978 — and the 92,000,000 Americans not in the work force will not be attending the celebration. Sorry.
The number of part time jobs v full time jobs whispers the truth of it all. It is still very hard out there for a working man and woman.
The dramatic increase of health care insurance coupled with high deductibles has now hit and it isn’t pretty. It steals the buying power from the middle class even as middle class incomes have dipped almost $5,000 in the last six years. Pardon me if I don’t lead the cheers.
Capital drives the economy
Capital is what drives the economy. When capital is deployed effectively, new businesses are formed, equipment is purchased and jobs are created. The easy flow of capital is a jobs creator. Job holders are also called taxpayers.
The deployment of after tax capital gains is what drives prosperity.
When do you buy “stuff”? When you go to the pay window.
These massive tax increases puts the splendor of job creating capital gains in the pocket of the government rather than in the hands of those who earned it.
If you made a $1,000,000 capital gain, under Bush you kept $850,000 and the government took $150,000.
Under the Obama proposal, same $1,000,000 gain — you keep $682,000 and the government takes $318,000.
You lose to the tune of $168,000.
What really happens is that the economy does not have the benefit of that additional $168,000 flowing through it creating new businesses, buying equipment and creating jobs.
Who is better at doing that stuff — entrepreneurs and investors or the government? Who should be holding and investing the hard earned loot?
Federal tax receipts
Taxes are necessary to run our government. They are also used to drive outcomes. You want more jobs? You tax the job creators less — make sense?
This problem is even more pronounced because as we discuss this subject, the government is enjoying record high Federal tax receipts. No tricks at work there. The government is enjoying more revenue than ever before in the history of the United States.
What we are not seeing is any expense control, entitlement reform or any attempt to use that record revenue to put our financial house in order.
Want to be considered a radical today? Call for a balanced budget, entitlement reform, deficit reduction, attention to the national debt or concern about the debt ceiling. You should wear your underwear on the outside of your khakis before you consider any of those radical ideas. Less troubling.
If you wonder why the US is not able to create jobs even sufficient to keep up with high school graduations, college graduations, soldiers returning to the work force — it is things like this. The unconscionable taxation of job creating capital.
There is a very simple fix to this. Elect people who know something about creating jobs, finance, business and who have the interests of the middle class in their hearts more soundly anchored than funding their own pet liberal whims.
It is your money and you do a much better job spending it than Washington ever will.
To my thin skinned Tesla liberal friends, I say this — this really not about the President, it is about the President’s policies. The President’s tax policies. It is about the efficacy of policy as a jobs creator. If you like this job crushing policy, you can keep your job crushing policy. Please pass the Ramen noodles.
But, hey, what do I really know anyway? I’m just a paid for Big Red Car and I’m going to be cruising today.
