[FoRK] so is it for real now?

J. Andrew Rogers andrew at ceruleansystems.com
Mon Oct 13 18:50:38 PDT 2008

On Oct 13, 2008, at 5:17 PM, Lucas Gonze wrote:
> What's the difference between old deliberate loopholes and new
> incentives, except for transparency?  How were those loopholes
> anything but politicization?

In the original policy of yore, you could defer capital gains taxes  
indefinitely by reinvesting the gains into most any small or medium  
business that was capitalized to less than, in 2008 money, about $100M  
(no idea what the precise state is at the moment). It was intended to  
create a virtuous feedback cycle, where capital growth would be  
invested in generating even more capital growth. It is easy to see how  
this would work in places like Silicon Valley. Since capital and  
capital growth pretty much define an economy, this was considered A  
Good Thing.  You still had to pay taxes on any eventual net gains, but  
only if you stopped risking your capital in small-ish companies.

It was not a "loophole" per se, it was just economic policy that  
encouraged people to either reinvest their capital in business  
ventures or pay a lot of taxes. About as political-free as you can get  
in a tax policy.

The proposed tax policy choice is "pick a government approved company  
and never pay taxes" or "pay one of the highest capital gains tax  
rates in the industrialized world".  Gosh, I do not see any  
possibility for unfairness, abuse, or unintended consequences at all.

That is a pretty damn big qualitative difference in terms of  
politicization.  It must be swell to be the investor who has the ear  
of someone who helps decide who is currently "approved" and who is  
currently "unapproved".  It is a spectacular opportunity for  
government manipulation and corruption, it is less economically  
efficient than the old way on its face, and creates all manner of  
perverse incentives that do not currently exist. Since when is it a  
good idea for government to pick winners and losers in the venture  
marketplace according to political whim? And it would be great to be  
one of those well-connected people who never has to pay any capital  
gains taxes.  More simply, what could possibly be the justification  
for using the new system over the old system?  Is it the fact that you  
would now be able to permanently exclude yourself from paying any  
significant taxes? I thought Democrats were supposed to be against  
this kind of banana republic government.

Seriously, is it that hard to understand? After being hyper-sensitive  
to every perceived potential for corruption in the current  
administration, is everyone suddenly blind to an obvious whopper  
dumped right in front of them?


J. Andrew Rogers

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