Liberty Forged

the State has no money of its own, so it has no power of its own. ` Nock

On taxes, inflation and capital gains

Posted by Jesse on March 10, 2009

Rozeff- Countdown to the tax-rise torpedo – January 15 2007

Make no mistake about it. Taxes on capital gains and dividends have an important impact on stock prices. The bull market of the 90’s drew strength from cuts in these taxes and from extensions of tax shelters within retirement and related accounts. The Mellon, Kennedy, and Reagan tax cuts led into robust bull markets. Carter’s waffling on tax cuts accompanied an uncertain up and down stock market. The Hoover-Roosevelt tax increases accompanied a major depression in the economy and the stock market. Significant alterations in tax rates have prolonged effects on both the economy and asset markets.

Despite their professed antipathy to deficits, which is a ploy to justify tax increases, Washington Democrats face deficits as far as the eye can see. They will finance them through borrowing just as Republicans have. They will play with taxes to win political points, with a bias toward increasing them.

It should be noted that the stock market hates uncertainty, and conflict between the Executive and the Legislative branches generates uncertainty. With a split between the parties, we will see that being another source of increased uncertainty.

Furthermore, investors should bear in mind that the stock market is experiencing a super-downtrend that began in the year 2000 and that may last 15–20 years. During such a long-term bear trend, the overvaluations of the preceding super-bull market are gradually eliminated until prices end up at depressed levels. While this occurs, the component uptrends such as we are now having tend to be much less robust than the uptrends within a super-bull period.

North- Get Ready Pick Up The Tab (Again) – July 11, 2003

In 1775-76, the American colonies revolted because of taxation without representation. The total tax burden imposed by England was about 1%.

Note: if anyone wants to pick up my share of the tax burden, I would be happy to let him have my right to vote. Too bad that deal is not available.

There will be a revolt when the voters finally figure out that they will not be able to milk the system for more than they are paying in milk. The voters today look at the Federal Government as if it were a cow with an udder with 290 million teats. When the tax burden becomes too great, they will finally figure out that they are part of the udder rather than the squeezing fingers.

But before this happens, the FED will start picking up more of the tab. The public will pay for the system, not by direct taxation, but by indirect taxation: monetary depreciation. That’s why I don’t worry about deflation. I look at that list of free goodies to immigrants, and I know for sure that there will be no deflation in my old age.

Paul – Statement on Competing Currencies Feb 13, 2008

The final step to ensuring competing currencies is to eliminate capital gains and sales taxes on gold and silver coins. Under current federal law, coins are considered collectibles, and are liable for capital gains taxes. Short-term capital gains rates are at income tax levels, up to 35 percent, while long-term capital gains taxes are assessed at the collectibles rate of 28 percent. Furthermore, these taxes actually tax monetary debasement. As the dollar weakens, the nominal dollar value of gold increases. The purchasing power of gold may remain relatively constant, but as the nominal dollar value increases, the federal government considers this an increase in wealth, and taxes accordingly. Thus, the more the dollar is debased, the more capital gains taxes must be paid on holdings of gold and other precious metals.

Just as pernicious are the sales and use taxes which are assessed on gold and silver at the state level in many states. Imagine having to pay sales tax at the bank every time you change a $10 bill for a roll of quarters to do laundry. Inflation is a pernicious tax on the value of money, but even the official numbers, which are massaged downwards, are only on the order of 4% per year. Sales taxes in many states can take away 8% or more on every single transaction in which consumers wish to convert their Federal Reserve Notes into gold or silver.

In conclusion, Madam Speaker, allowing for competing currencies will allow market participants to choose a currency that suits their needs, rather than the needs of the government. The prospect of American citizens turning away from the dollar towards alternate currencies will provide the necessary impetus to the US government to regain control of the dollar and halt its downward spiral. Restoring soundness to the dollar will remove the government’s ability and incentive to inflate the currency, and keep us from launching unconstitutional wars that burden our economy to excess. With a sound currency, everyone is better off, not just those who control the monetary system. I urge my colleagues to consider the redevelopment of a system of competing currencies.

Rozeff – Capital Gains Time Bomb – Feb 9 2009

The capital gains tax cuts of Bush contributed to the economic recovery after 2003, perhaps greatly. To some extent, they stimulated saving and investment in productive assets. They brought a degree of real growth driven by entreprenurial activity. These cuts partially rectified the unequal treatment of capital gains for houses (no tax on the first $500,000 of gains.)

These cuts expire at the end of 2010. The Obama administration will not renew these cuts. Both Obama and Summers are on record on that, and both are in accord on opposing capital gains tax cuts as favoring the rich. Pelosi may work toward an earlier expiration. The tax will be restructured in some way, now unknown. The entire process is going to create uncertainty. Higher capital gains taxes as an end result will shock the economy negatively. The powers-that-be seem blissfully unaware of this.


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