After Gamestonk will hedge funds now threaten U.S. solvency itself?

Trunkage

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Good. I was afraid they were going to be stupid jerks, raise the corporate taxes, and pretend that actually targets the rich.
Don't rich people have all their assest tied up in a 'company' so they dont have any capital.
 

stroopwafel

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Don't rich people have all their assest tied up in a 'company' so they dont have any capital.
It's almost exclusively in investment funds or stocks otherwise you lose money(tax, inflation and now negative interest rates). Hedge funds don't exactly represent the milkman.
 

tstorm823

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Don't rich people have all their assest tied up in a 'company' so they dont have any capital.
If you're talking about the phenomenon of people like celebrities setting up companies to not pay personal tax on all their income, that's rather limited, and raising all corporate income taxes to punish specifically that is like mowing your lawn with a nuclear bomb.

If you mean that wealth is generally invested in something, then yes, and that's a good thing. But capital gains taxes is how you tax those people. Take Jeff Bezos: he's worth like $150 billion. The vast, vast majority of that wealth is in Amazon stock. How does one tax that? His regular income is a tiny percent of his wealth, income tax isn't going to target him. Corporate income taxes on Amazon don't either, because those taxes are on profits, and Amazon "doesn't profit", it puts all excess revenue into R&D, which means they don't pay dividends on the stock anyway. Bezos' personal money comes mostly from liquidating his stock holdings, which is what capital gains taxes.

The super rich don't get there through corporate profits. They get there by owning big chunks of corporations, having the value of that ownership multiply, and then selling it off. That's where billionaires come from. The people who depend on corporate income are largely the owners of small to mid-size companies, who rely on company profits for their paycheck, who can't fund their personal lives by selling a meaningless fraction of their stake in the company. Those people, owners that depend on corporate income, are the ones whose personal wealth is at odds with their employees and their customers. Raising a salary or lowering a price can come at a personal cost. Jeff Bezos doesn't care about that, he could raise Amazon wages and become richer if the move raised market confidence in the stock value. It's smaller corporations that need to run a profit because that's the ownership's income that get hit hard by corporate taxes. Where the gross revenue is paying the ownership, and a wedge shoved into that total pool of money inevitably puts pressure on every other stakeholder.

Capital gains should be taxed higher. I genuinely don't know a compelling reason to tax it differently than other forms of income. Corporate income tax does have a compelling reason not to be taxed aggressively, as the burden is in part passed on to exactly the people we try not to tax.
 

Agema

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If you mean that wealth is generally invested in something, then yes, and that's a good thing. But capital gains taxes is how you tax those people. Take Jeff Bezos: he's worth like $150 billion. The vast, vast majority of that wealth is in Amazon stock. How does one tax that? His regular income is a tiny percent of his wealth, income tax isn't going to target him. Corporate income taxes on Amazon don't either, because those taxes are on profits, and Amazon "doesn't profit", it puts all excess revenue into R&D, which means they don't pay dividends on the stock anyway. Bezos' personal money comes mostly from liquidating his stock holdings, which is what capital gains taxes.
Yes and no.

Capital gains tax is due when the asset is sold or passed on. In practice, people like Bezos don't liquidate most of their stock, they sit on it. And they have lots of way of putting it into protected forms such that they can pass it on without actually selling it and making it due for capital gains - most obviously, transfer it to a trust. Capital gains tax will indeed effectively hit the rich in ways corporation tax will not, but many of them will still have plentiful loopholes.

(Personally, I think trusts need to be hit with something approaching a ban, or otherwise very severely curtailed.)
 

tstorm823

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In practice, people like Bezos don't liquidate most of their stock, they sit on it. And they have lots of way of putting it into protected forms such that they can pass it on without actually selling it and making it due for capital gains - most obviously, transfer it to a trust. Capital gains tax will indeed effectively hit the rich in ways corporation tax will not, but many of them will still have plentiful loopholes.
I mean, "sitting on stock" is also "maintaining consistent ownership", which isn't a bad thing. It's not like there's a pile of money in a mattress they aren't spending.
 
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Seanchaidh

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I mean, "sitting on stock" is also "maintaining consistent ownership", which isn't a bad thing. It's not like there's a pile of money in a mattress they aren't spending.
yeah, they're just taking the value produced by others for themselves. such merit!
 
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tstorm823

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yeah, they're just taking the value produced by others for themselves. such merit!
You're gonna have a tough time arguing that people owning something they don't liquidate while it creates no profit and they receive no payment for their ownership are taking the value produced by others for themselves.
 

Silvanus

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You're gonna have a tough time arguing that people owning something they don't liquidate while it creates no profit and they receive no payment for their ownership are taking the value produced by others for themselves.
Not that hard a time. Stock has value. They have the ability to liquidate it at any time, meaning it constitutes a part of their wealth by any reasonable metric.

Arguing that because it hasn't been liquidated and spent right now, and thus it doesn't count as value/ wealth, is a bit like arguing that money doesn't constitute value because it hasn't been spent. It's just an extra step, it's immaterial.
 
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Gethsemani

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You're gonna have a tough time arguing that people owning something they don't liquidate while it creates no profit and they receive no payment for their ownership are taking the value produced by others for themselves.
Imagine thinking that stock doesn't create profit. I've got like 6 stocks in some stable Swedish industry that makes me a regular 3-4 bucks every year in dividends and payouts. For a guy like Bezos sitting on hundreds of thousands of Amazon stock the yearly shareholder payout will be in the millions, easy.

So: Where does the shareholder payouts come from? Company profit. Where does company profit come from? The labor of its workers. That wasn't even close to hard, it isn't even econ 101.
 
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Agema

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I mean, "sitting on stock" is also "maintaining consistent ownership", which isn't a bad thing. It's not like there's a pile of money in a mattress they aren't spending.
Indeed so: companies need long-term institutional investors. I just mean to point out CGT isn't going to tax some people we in ways we might find desirable.

I actually think there is something seriously wrong - even under capitalism - for people to get as rich as Jeff Bezos and co. One would hope that ideally competition would ensure no company could become a market leader to such an absurd extent, and I think it's indicative of market failure that they don't.

Imagine thinking that stock doesn't create profit. I've got like 6 stocks in some stable Swedish industry that makes me a regular 3-4 bucks every year in dividends and payouts. For a guy like Bezos sitting on hundreds of thousands of Amazon stock the yearly shareholder payout will be in the millions, easy.
Amazon has never, in its entire existence, paid a dividend (!!). It's barely ever made a profit: nearly all its spare income is funding expansion.

That's what quite a few of these companies really are. Turbocharged growth machines fed by staggering investment with modest or negative returns. Again, as per the above regarding a functioning market, it is arguably a bit disturbing for companies to roll on year after year without ever doing the most basic thing companies are supposed to. I'm aware that shareholders are gaining value due to share price increases, but even still.
 
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tstorm823

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Not that hard a time. Stock has value. They have the ability to liquidate it at any time, meaning it constitutes a part of their wealth by any reasonable metric.

Arguing that because it hasn't been liquidated and spent right now, and thus it doesn't count as value/ wealth, is a bit like arguing that money doesn't constitute value because it hasn't been spent. It's just an extra step, it's immaterial.
Seanchaidh is doing the communist thing and suggesting the wealth of owners of corporations is effectively stolen wealth, generated by other people. It's usually a dumb enough argument in the general sense, but it's extra dumb here when we are talking about capital gains rather than corporate profits. The wages of the workers and the money made selling stock don't pull from the same pool of money. Those things aren't in competition with one another.
Imagine thinking that stock doesn't create profit. I've got like 6 stocks in some stable Swedish industry that makes me a regular 3-4 bucks every year in dividends and payouts. For a guy like Bezos sitting on hundreds of thousands of Amazon stock the yearly shareholder payout will be in the millions, easy.

So: Where does the shareholder payouts come from? Company profit. Where does company profit come from? The labor of its workers. That wasn't even close to hard, it isn't even econ 101.
I'll defer to Agema's response.
Indeed so: companies need long-term institutional investors. I just mean to point out CGT isn't going to tax some people we in ways we might find desirable.
That's fair. I would say fixing capital gains taxes is a step in the correct direction, and if closing that faucet causes some leaks to spring, we address those next. The outcome I find undesirable is "Raise the corporate income tax! That'll get those rich people!", so any talk about taxing the wealthy other than that is good by me.
 

Avnger

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How exactly would that threaten U.S. solvency?
It wouldn't. As a nation-state with control over its own currency, it's debatable if the US even can become insolvent, and even if we assume it could, it's also debatable whether it actually would mean anything. The US (and other similarly situated countries) aren't people, households, or even corporations; the "normal rules" regarding income and debt don't apply.
 
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stroopwafel

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How exactly would that threaten U.S. solvency?
By massively shorting those bonds the hedge funds have managed to lower the price of debt securities but the federal reserve can repurchase those bonds and print money in unlimited supply. The hedge funds speculate that those bonds will lower in value due to Biden's spending spree and that this will lead to inflation and increase the interest rates. The problem is that hedge funds do it so massively that it creates a self fulfilling prophecy making the state deficit astronomically expensive. The federal reserve will obviously try to prevent that ie print more and more money. As a result investors might lose faith. And for a nation that thrives on credit..
 

CaitSeith

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The problem is that hedge funds do it so massively that it creates a self fulfilling prophecy making the state deficit astronomically expensive
How so? The amount the state is in debt is based on the bond's face value; not the market value.
 

stroopwafel

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How so? The amount the state is in debt is based on the bond's face value; not the market value.
No, it's based on inflation and interest rates. That determines the cost. The height of the debt securites is what the hedge funds managed to lower by massively shorting those bonds. They managed an efficiency increase from 0,9 to 1,6% in just four months. With Biden creating another thousands of billions of dollars of debt they expect inflation and interest rates to increase. The hedge funds can massively short again creating this downward spiral.
 

Seanchaidh

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You're gonna have a tough time arguing that people owning something they don't liquidate while it creates no profit and they receive no payment for their ownership are taking the value produced by others for themselves.
they own something that increases in value because of the work of others. it doesn't matter if it's a bank account or a collection of stocks or, indeed, huge CEO compensation in the fashion of money or more stock.
 
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