Real Estate Investing — Capital Gains Taxes — The Economy

Posted @ 8:13 pm - Filed under BawldGuy Axiom, Economy, IRS, Purposeful Planning, Real Estate Investing

Behavior is the ginormous elephant in the room in any discussion of income/capital gains taxes. Still, many believe the myth that it’s axiomatic when taxes go up or down, the income to the Treasury does the same. This has been debunked since the early 1960’s.

Don’t know about you, but when the capital gains tax was say, 28% plus another 5% (or more) or so from your friends in state government, real estate investors tend to avoid selling investment property. Something about givin’ up 1/3 of their profits off the top rubs them the wrong way. So what do they do? The same as millions of others. They make the decision not to make government their partner.

Go figure.

BawldGuy Axiom: To the extent the government insists on being the taxpayer’s ‘partner’, the taxpayer will do what it takes to avoid that happening. (Original quote by: Captain Obvious)

What happens whenever relatively high income/capital gains rates are cut? The behavior of taxpayers changes. Duh. Come on people, is this a revelation? Don’t know about you, but taxpayers’ behavior changes when they’re allowed to keep more of their own money. For Heaven’s sake, is this news? Seriously?

Finally, let’s inject some street reality here.

Take a look at your properties’ tenants. They make, for the most part, just over or under the national income median. Any of ‘em ever give anyone a job? Their jobs were created by invested capital. Said capital goes uninvested, remaining on the sidelines when capital gains taxes rise to the point where the investor considers them either onerous, confiscatory, or both. We’ll never know how many companies weren’t started, and therefore jobs not created due to high capital gains rates.

And no investment means fewer jobs which means your tenants, or future tenants won’t be able to rent your units. Oh sure, now yer payin’ attention.

This isn’t rocket science, people. Currently, trillions of dollars of pent up capital gains is sitting on the sidelines ‘cuz the cost of freein’ it up for new investments is prohibitive. Imagine what that kinda capital would do for our economy. It’s staggering. Wanna see what would happen if capital gains taxes were slashed?

Wonder how many businesses and therefore jobs would be created with all that freed up investment capital? This ignores the benefit to all of us of increasing income to the Treasury, which would, if our politicians would pull their collective heads out, lower our national debt. How’s that you ask? Simple. 10% of a few trillion bucks is way mo betta than 15-25% plus state taxes on a tiny fraction of that amount.

Dad used to say it far more clearly. “You pick”, he’d say. “10% of something? Or 100% of nothin’. Take yer time, no rush.”

Now ask yourself the same question. If you had a giant capital gain and knew you’d be able to keep 90% of it, wouldn’t it be enticing to pay the taxes?

Exactly.

Of course, first ya gotta engineer some capital gains for yourself, right? The first step might be to get a hold of me, so we can get you goin’ on your own Purposeful Plan. Contact me, and we’ll be talkin’ in no time. Have a good one.

This entry was posted on Monday, September 22nd, 2008 at 8:13 pm and is filed under BawldGuy Axiom, Economy, IRS, Purposeful Planning, Real Estate Investing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.