Boom in Dodgy Wall Street Deals Points to Market Trouble Ahead
bloomberg.com
bloomberg.com
I’m sure we could think of other options if we tried really hard.
In any case, the new "bonus depreciation" rules let companies take all of the depreciation in the first year. Effectively, they were able to shift their deductions from tax year 2019, 2020, 2021... into tax year 2018. I am sure many did/will. It's a nice trick to score a quick bump in profit, but it only works once.
If the market is full of dumb models that inappropriately extrapolate this bump into future years, the people investing money on the basis of those dumb models will be disappointed.
'Thats the same thing Michael's
-The Big Short
One of the best parts of Boglehead culture is a set of short, easily remembered phrases that describe core principles. In this case, I think of the phrase "Nobody knows Nothing!", which means there has never been anyone who can consistently tell when the market is about to spike upward or downward.
Everyday, there is new money flowing into the system automatically, without any conscious decision. It's coming from 401Ks, IRAs, etc. That money needs to be put into action.
This is basically a politically-motivated myth. https://www.nytimes.com/2019/04/14/business/economy/income-t...
80-90% of households making above $50k/year got a tax cut, yes, including residents of blue states that have their SALT capped.
The article I linked shows vast number of middle class people somehow ended up under the impression they paid more even when they actually had paid less.
Are you sure it wasn't due to your company messing up withholdings in 2018? What state do you live in and how much is average property tax in your area?
For reference we live in a blue state and own a home and my family made approx $3k more in 2018 vs 2017 yet we paid $1k less in taxes in 2018. We went from itemizing to taking the standard deduction.
The ideal situation is that you pay $0 and get a refund of $0 at tax time. The IRS is revising withholding forms now to help reach this goal.
I believe that the cap on deductions was a deliberate attack on blue states; I also believe a lot of people who received a tax cut believe that their taxes had risen.
The danger is that with such a long bull market, only God knows how many non-survivable companies there are beyond the Ubers and Lyfts.
What’s unsustainable will have to end eventually. Pushing money into the system doesn’t make the economy magically better by itself.
Additionally the idea that new money flowing into the system from 401Ks, IRAs, etc is extremely naive. These are long term investment instruments sure but as they are generally not actively managed they are not immune to fluctuations in the market and the market is not immune to people who have the misfortune to retiring in an economic bust. I have observed this in the second person as my grandfather was well to do before 2008, did not listen to my advice to allocate his retirement money to a guaranteed interest plan until after the market hit bottom (which was the wrong time to do that) he basically lost 500k.
Looks like 2020 is going to be an unfortunant year.
you could fix it by raising land value taxes high enough to extract all land rent and thus almost eliminating land speculation. At the same time you could get rid of most of our other taxes like capital gains and income taxes.
Baloney. The last one was, true. The Great Depression wasn't land, though - it was the stock market.
And rents these days don't primarily come from land. Your land value tax fits the economy of a few centuries ago, where the income primarily came from land, but it doesn't fit today, where the income primarily comes from other kinds of assets. (The value of the land it occupies is not how Amazon makes money.) All your land tax would do is penalize land compared to other asset classes. And, since you are wrong in your first point (that economic cycles are driven by speculation in land), you would do this for no good reason. That's probably not going to end well.
The obvious solution is a wealth tax instead of income taxes. Take back the money that's been privatised, end the pointless and inefficient boom and bust hamster wheel, and spend bigly on productive social investment - education, gamechanger R&D, small business development, aerospace, robotics, AI, renewables, and other physical infrastructure.
Why isn't this happening already?
Why hasn't it happened yet? I can see two reasons. Pick which one you think is more believable.
Reason 1: The rich don't like the idea of a wealth tax, and the rich have a lot of political clout.
Reason 2: The consequences could be rather negative. If the US creates a wealth tax, you'd see an exodus of assets and rich people. It would become a less attractive location for businesses (including startups). Would that be a net win for the US?
Meanwhile land wealth correlates very well with real wealth. Jeff bezos, for instance is one of the biggest landowners in the United States. And we already have a system in place to assess property values - and there's no way to hide property.
Jeff Bezos may be one of the biggest landowners in the US, but the cause and effect is backwards. He became rich off of something that didn't need much land (Amazon), and then later bought land with the money. But suppose he hadn't. Suppose he had been willing to just sit on his billions in Amazon stock. Should he escape the tax because he didn't buy land?
There's no way to hide property? There's not much way to hide stock ownership, either. (I agree that you can hide ownership of gold, diamonds, works of art, and bitcoin. But, frankly, not many people are using those as their primary stores of wealth.)
A wealth tax creates deadweight loss, whereas a land value tax benefits the economy? You need an argument to demonstrate that rather than just asserting it, at least if you want to actually convince anybody. From where I sit, it looks to me like a land value tax is just another kind of wealth tax, and is no more or less a deadweight loss than any other kind of wealth tax.
In fact, a wealth tax on stock might make stocks' values correspond more with their dividend rates. That might re-value things like Uber (valued at $90 billion but losing money hand over fist), which one could argue is a good thing. I could see that working in much the same way as you think a land value tax will work for real estate.
We already assess property value. If you tax wealth people will try to hide it in ways they do not now. Deadweight losses of various taxes are well established facts. Capital gains taxes are lower than other taxes for a reason: capital is more sensitive to tax rates.
It's telling you haven't replied to my other comment...
I didn't reply to your other comment because I put the substance of what I would say to that in this subthread.
Speaking of substance... you're not giving much. You're claiming that your position is correct, but you're not backing it up with anything solid. "Once you do the research you'll agree with me" is not an argument, it's an excuse. You want to claim you're right and have everyone else agree, but you don't seem to want to actually defend your position.
I'm done with this discussion, so I'll leave you the last word.
Even 10000 years from now, when civilization consists of a bunch of satellites orbiting the sun in a dyson swarm, an analogous orbit value tax will be the most logical source of tax revenue for a far future government. Land is always a prequisite for doing business, and absent an LVT, private sector actors will benefit from the network effects inherent therein, instead of the community that that value was actually generated by.
What's your alternative to a LVT, a sales tax? A vat? Income tax? Deadweight loss, deadweight loss, deadweight loss.
Also, your grandfather shouldn't have had all his money in equities. He should have retired and lived out of a savings account while the markets rebounded then re-balanced into bonds/CDs as the market bounced back. I got whacked in '08, but then made it all back and more. 2 yrs. of living expenses in cash would have prevented losing 500K.
Not too long anymore then we will reach Peak 401K.
The 2008-era crisis in theory should have resulted in a whole heap of financial managers taking their companies bankrupt/to a place of horrid returns and being blacklisted from ever managing a lemonade stand. But they were bailed out, so now they got promotions instead for record returns or whatever it is they've been doing since. Since the finance industry has substantial control over what everyone else does, that leaks out into the real world.
So, the intuition is that the system is being corrupted and people with no ability to make good decisions are being put in charge. At some point that should boil over. You can fit math models to that and guess which metric will blow out first.
I'm not sure how much I buy that argument; people have an incredible ability to put up with suboptimal circumstances. But when you put idiots in charge there is always a risk that they do something spectacularly stupid so my personal guess is at some point the pensions crack and trigger something. It is a spectator sport in a way. Maybe America is productive enough that they can cope with a few bad eggs in the financial markets. Maybe the taxpayers can shoulder all burdens!
POSTSCRIPT
Just for fun, veering off topic.
https://en.wikipedia.org/wiki/List_of_bank_mergers_in_the_Un...
My interpretation is that something went wrong with bank regulation in the late 70s or early 80s. That is when the too-big-to-fail snowball started rolling; since then the stresses in the system seem to have been building. 2008 was a nasty blow.
I'm assuming you are referring to the repeal of Glass-Steagall?
Yes, it's called "Ronald Wilson Reagan" and was worsened when Glass Steagall was repealed by Clinton in a remarkably short-sighted move. Another poster already mentioned the Savings and Loan crisis that happened in the 90s that took taxpayers for a ride to the tune of 130 billion dollars (around 250 billion dollars today). We should have learned from it but for some reason (probably greed) we made the same mistakes again with Glass-Steagall and then not even 10 years after repealing that we reaped our rewards: subprime mortgages falling apart and taxpayers footing the bill while thousands were foreclosed on. The same is happening with auto loans right now.
For some reason, if you are a white collar criminal, the rules don't apply to you. No matter how much you fuck up and how much illegal shit you do, none of it sticks. Look at Boeing. 346 people died, but I honestly bet the worst thing that happens to any of the managers that OK'd that plane is they lose their jobs; realistically they probably won't even lose that. Maybe not get a bonus.
The common thread here is not just with deregulation being seen as the magical cure all that fixes all our problems (because as it turns out, sometimes we have regulations for very good reasons!) but that there are simply no consequences for doing bad things if you are stealing from or hurting the average American taxpayer. The only difference between Bernie Madoff and the bankers in 2008 that grifted us all is that Madoff made the mistake of trying to steal from the rich.
If anything the danger is increased because there isn't room to cut rates because they are already low.
It isn't long since organisations were happy to pay central banks to have their money stored safely.