From: demon@desire.wright.edu (Not a Boomer)
Subject: Re: Capital Gains tax increase "loses" money
Distribution: na
Organization: ACME Products
Lines: 70

In article <C5J8wI.IGK@panix.com>, eck@panix.com (Mark Eckenwiler) writes:
> In <1993Apr15.045651.6892@midway.uchicago.edu>, thf2@midway.uchicago.edu sez:
>>In article <1993Apr14.135227.8579@desire.wright.edu> demon@desire.wright.edu (Not a Boomer) writes:
>>>
>>>	No, I'm saying any long term investor (the ones likely to have large
>>>capital gains) would be foolish to sell in order to avoid a tax hike that a)
>>>might disappear in any given year and b) be overcome in a year or two by
>>>accumlated gains.
>>
>>To which my response is--so what?  Not all people who pay capital gains
>>taxes are long term investors.  More than enough of them aren't for there
>>to be huge blip whenever capital gains taxes get raised.
>>   I never said that *everyone* would find this advantageous.  I said that
>>more than enough would for the result to be readily noticeable and distort
>>"trends".
> 
> Even if Brett's eventual-return figures were correct -- and they
> clearly weren't -- he'd still be wrong about the cause for the '86
> blip because he fails to consider 2 basic factors:

	You misunderstand.  I'm not trying to prove a *cause* for anything. 
Merely pointing out that Ted's assertion that the "blip" in revenues was
"caused" by selling to avoid the tax can't be proven.

> 1) As Ted notes, not everyone is a long-term investor.  One might find
> oneself, as I did in late 1986, anticipating expenses in the near term
> that require selling off holdings.  Given the choice between waiting a
> few weeks (and taking an extra tax hit) or selling in December with
> preferential tax treatment, only a fool would choose the former.

	Not disputed.

> 2) The fact that Brett can now construct _post hoc_ calculations of
> what would have been more beneficial to investors is in many respects
> beside the point.  There was plenty of _Money_-style advice given to
> unsophisticated investors in late 1986 to "sell now and save on
> taxes."  In case anyone missed it, there was no shortage of similar
> advice late last year (in the NYTimes, e.g.), even though that advice
> was based not on the foregone conclusion of enacted law (as in 1986),
> but merely on the *assumption* that Clinton would raise tax rates
> (without capping CG taxes, contrary to the current proposal).

	It works for any situation.  If you believe the market is going up,
don't sell.

	If believe it's not, sell.  But then you'd be selling anyways, wouldn't
you?

	So where is the evidence that a large number of people suddenly decided
that the higher taxes meant they should sell before the year was out?

	There isn't any.

	Ted's saying that the increase over the previous year is "proof" of
that proposition, but I'm saying you can't know that the trend of increasing
capital gains revenues wouldn't account for a lot of that increase.
	1986 was the height of the housing boom, remember.  People were
"trading up" like mad.

> It's nice to think that investors always behave in their optimal
> economic interest.  Like assuming weightless ropes and frictionless
> pulleys, though, this sort of thinking often fails to describe
> accurately what happens in the real world.

	Indeed.

Brett
________________________________________________________________________________
	"There's nothing so passionate as a vested interest disguised as an
intellectual conviction."  Sean O'Casey in _The White Plague_ by Frank Herbert.
