"John D. Giorgis" wrote:
>
> >> At 10:59 PM 2/5/2003 -0600 Dan Minette wrote:
> >> >> Indeed, from 1994 to 1999, capital gains reports under Adjusted Gross
> >> >> Income more than tripled in nominal terms.
> >> >
> >> >That's because there was a capital gains tax cut in '97. It give folks
> >a
> >> >chance to cash in on their capital gains while paying minimal taxes.
> >>
> >> If that was the predominant effect, it would have occurred in 1998, not
> >> 1999 - so that's not an explanation. I don't know what model would
> >> support an increase in capital gains revenues due to "cash-ins" two years
> >> after a capital gains tax cut.
> >>
> >> Indeed, aren't tax cuts supposed to *decrease* revenues two years after
> >the
> >> cut in your mind?????
> >
> >A short term cashing of capital gains after a cut was never questioned.
> >Its the long term impact that was questioned.
>
> Yes, but by what model? If what you say is true, then investors were
> choosing not to realize capital gains because of high capital gains tax
> rates. Following the reduction in rates, these investors then "cash out"
> producing a one-off boost in capital gains revenues.
>
> This model, however provides no scenario in which capital gains revenues
> spike two years after the cuts.
1) Not enough investors aware the first year?
2) What was the period for long-term vs. short-term? If you'd been
acquiring a few shares every year of a company and wanted to cash them all
out at once, it would be easier to hang onto everything until the last
purchase had fallen into the long-term category.
3) What was the trading doing in general? Were there other factors that,
independently of any tax changes would prompt more trading in the second
year?
4) The tax cut didn't occur until partway through the year. Anyone with
any experience in dealing with taxes might hesitate to deal with a more
complicated Schedule D and put off liquidation. [And I can attest that that
particular Schedule D *was* a royal pain; I assisted someone used to doing
their taxes themselves (on paper, not with a computer) and I never want to
deal with a mid-year tax cut situation like that ever again in my life.] Of
course, this might not hold for people who regularly have their CPAs take
care of it, but the CPAs might have warned that it would take longer, hence
they'd be charged more for tax preparation.
Just tossing ideas out.
Julia
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