Comments on: To President Obama, After Your Speech http://www.theprosperitymandate.org/blog/letter-to-president-obama/ A Sustainable Solution To Our Current Economic Crisis Sat, 19 May 2012 15:57:28 +0000 http://wordpress.org/?v=2.7 hourly 1 By: Neal Katz http://www.theprosperitymandate.org/blog/letter-to-president-obama/comment-page-1/#comment-63 Neal Katz Sun, 01 Mar 2009 18:27:54 +0000 http://www.theprosperitymandate.org/blog/?p=102#comment-63 Hard to disagree with someone named JC! However, I will. Let's just assume as axiomatic that we have a huge crisis on our hands and the greatest imperative and most critical focus is to create several million new jobs. Just assume this for arguments sake! How does the lower tax bracket for Capital Gains create jobs. Unless you buy into either one of these two concepts: 1. The Reagonomics "trickle down theory" -- which has proven not to work , or 2. if you believe the Keynsian theory of increasing propensity to consume is equal to increasing disposable income -- which is simply not possible after the first $1 million and certainly not possible after the second - or $2 Million; then You are left giving a huge tax incentive that makes wealthy people wealthier - without any direct impact on creating jobs and the economy. Example 1: When a wealthy individual buys an existing public share of stock and later sells it -- not $1 of the transaction (let's exclude the commission to the broker) goes into the economy -- not $1. Why does this get a 60% subsidy in income tax through the Tax Code. Exception to #1 would be any shares that are purchased at the Initial Public Offering Window -- about 86% of that money goes to the company offering its shares to the public and then into the economy -- THAT should receive the subsidy - but only then! Example 2: You own a home that you purchased as an existing home -- you sell it after a number of years (having received a subsidy for the cost of owning it via a mortgage deduction) -- and make a profit (A) and buy another home for a greater value (B). The profit on A above receives a 6-% subsidy on income tax - why? It did not create any jobs, income tax deductions through he mortgage have already subsidized the purchase -- the home existed and no one went to work -- why the subsidy? If B occurs then the greatest absurdity is that no tax is paid if the seller conducts a 1031 exchange. WHY? If they buy an existing home for equal or greater moneies -- no one got any work! Not one job - yet this entire transaction if tax free and there is no limit to the size of the profit. I know I've done it -- and in today's economy it is obscene! Exceptions to # 2: If one of the houses was of new construction - the the tax code should incentivize the transaction -- because building new homes create jobs. Today's tax code - penalizes an owner for changing the nature of real estate - as in filing a condo map and building condominiums on a apartment building. How idiotic to make a conversion that creates many many jobs in construction and selling of the new homes taxed at normal income tax rates -- whereas if you sell it as is, you get both or either Capital Gains or 1031! Again, if the assumption is job creation, I don't understand how any of the above is so complex that we cannot change the tax code -- albeit somewhat radically for the wealthiest 5% of our nation. But really, they can afford it -- AND if they invest in a Fund America Program and create jobs, they WILL get almost an equal benefit - but for really creating jobs. OK I'm off to LA to meet with my Elementary School Class - should have access to a computer by evening and VERY MUCH want to hear your thoughts, John. You are clearly sophisticated, so I am greatly troubled and need to understand if you do not accept the logic of the above. Neal Katz Hard to disagree with someone named JC! However, I will.

Let’s just assume as axiomatic that we have a huge crisis on our hands and the greatest imperative and most critical focus is to create several million new jobs. Just assume this for arguments sake!

How does the lower tax bracket for Capital Gains create jobs. Unless you buy into either one of these two concepts:

1. The Reagonomics “trickle down theory” — which has proven not to work , or

2. if you believe the Keynsian theory of increasing propensity to consume is equal to increasing disposable income — which is simply not possible after the first $1 million and certainly not possible after the second - or $2 Million; then

You are left giving a huge tax incentive that makes wealthy people wealthier - without any direct impact on creating jobs and the economy.

Example 1: When a wealthy individual buys an existing public share of stock and later sells it — not $1 of the transaction (let’s exclude the commission to the broker) goes into the economy — not $1. Why does this get a 60% subsidy in income tax through the Tax Code.

Exception to #1 would be any shares that are purchased at the Initial Public Offering Window — about 86% of that money goes to the company offering its shares to the public and then into the economy — THAT should receive the subsidy - but only then!

Example 2: You own a home that you purchased as an existing home — you sell it after a number of years (having received a subsidy for the cost of owning it via a mortgage deduction) — and make a profit (A) and buy another home for a greater value (B).

The profit on A above receives a 6-% subsidy on income tax - why? It did not create any jobs, income tax deductions through he mortgage have already subsidized the purchase — the home existed and no one went to work — why the subsidy?

If B occurs then the greatest absurdity is that no tax is paid if the seller conducts a 1031 exchange. WHY? If they buy an existing home for equal or greater moneies — no one got any work! Not one job - yet this entire transaction if tax free and there is no limit to the size of the profit. I know I’ve done it — and in today’s economy it is obscene!

Exceptions to # 2: If one of the houses was of new construction - the the tax code should incentivize the transaction — because building new homes create jobs.
Today’s tax code - penalizes an owner for changing the nature of real estate - as in filing a condo map and building condominiums on a apartment building. How idiotic to make a conversion that creates many many jobs in construction and selling of the new homes taxed at normal income tax rates — whereas if you sell it as is, you get both or either Capital Gains or 1031!

Again, if the assumption is job creation, I don’t understand how any of the above is so complex that we cannot change the tax code — albeit somewhat radically for the wealthiest 5% of our nation. But really, they can afford it — AND if they invest in a Fund America Program and create jobs, they WILL get almost an equal benefit - but for really creating jobs.

OK I’m off to LA to meet with my Elementary School Class - should have access to a computer by evening and VERY MUCH want to hear your thoughts, John. You are clearly sophisticated, so I am greatly troubled and need to understand if you do not accept the logic of the above.

Neal Katz

]]> By: John C http://www.theprosperitymandate.org/blog/letter-to-president-obama/comment-page-1/#comment-62 John C Sun, 01 Mar 2009 18:18:24 +0000 http://www.theprosperitymandate.org/blog/?p=102#comment-62 I took a look at the program. It makes a little sense. It ignores the complexity of what the tax code is trying to cover. That's the problem with most of these "simple" tax plans. The world is much more complex than that. People are always creating loopholes to get out of paying taxes and then new laws are created to handle the loophole. Each new law on it's own is simple but when taken together as a whole the law becomes complex. Throw out the tax code and it will be larger and more complex in a few short years. Mortgage deductions are already limited. If you make over a certain amount you can no longer deduct mortgage interest. I'm not sure how much that is. Limiting capital gains makes no sense. Limiting tax free capital gains makes a lot of sense and is already done on real estate up to 250k. John C I took a look at the program. It makes a little sense. It ignores the complexity of what the tax code is trying to cover. That’s the problem with most of these “simple” tax plans. The world is much more complex than that. People are always creating loopholes to get out of paying taxes and then new laws are created to handle the loophole. Each new law on it’s own is simple but when taken together as a whole the law becomes complex. Throw out the tax code and it will be larger and more complex in a few short years.

Mortgage deductions are already limited. If you make over a certain amount you can no longer deduct mortgage interest. I’m not sure how much that is.

Limiting capital gains makes no sense. Limiting tax free capital gains makes a lot of sense and is already done on real estate up to 250k.

John C

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