The unindexed capital gain has a quieter twin: the bond coupon. It is taxed in full, including the part that only replaces lost purchasing power. At 5.08% on the 10-year, a 37% bracket keeps 3.2%; if inflation runs 3%, the real return is near zero. Is that 'bracket creep on interest' the bigger hidden tax for savers?
The capital gains example is a clear illustration of the point: a $100 purchase sold at $200 after prices double leaves a taxable gain of $100 even though the real gain is zero. Since gains are not indexed, the tax bite grows with inflation.
The silly Fed creates a dollar and right away the government wants 60% of it up front and another 30% of it in taxes. Poor man Joe gets the remaining dime that isn't worth a plug nickel after inflation.
Really good. I have tried many times to have this same discussion with my adult children but they are convinced higher prices are caused by greedy CEOs because that is what is being fed to them across most of social media
This is dark and I'm not sure if they're connected, but they might be. As we've entered into this inflationary period, we're seeing states and countries pass laws like the "Medical Assistance in Dying" and the like. Depressed because you can't afford life? Now it's legal to just kill yourself and the state will help.
The point that inflation works as a hidden revenue source for governments is a useful framing. I'd be interested in how you see it playing out when the reserve currency status itself starts to erode, since that unique position is what lets this go on for so long.
Hi. That is what this series of letters will be addressing. This was letter 3 in a series that will take 12 or 13 letters to get through. Losing the reserve currency status means that the inflation the government will undertake will affect our prices in the states a lot more than it has so far. Debasing the currency is always destabilizing. Meaning, things won't be stable. Interesting times ahead.
The $100 stock example is the clearest way I've seen this explained. If prices double over twenty years and you sell at $200, you still owe tax on a gain that buys nothing extra, and you end up with about $88 in real terms. Most people never run that math, which is a big part of why nobody pushes back. It also explains why so many people buy stocks even when they're nervous, since cash in the mattress loses even more.
the zingers keep coming. Thanks John. You are truly spilling the truth forcefully now. With fiat currency, there are so many ways for government to steal; the system incentivizes poor capital allocation and behavior that detracts from productivity growth. Incentivizing usage of debt for everything from government operations (US treasuries) to buying your burrito lunch is counter-productive for a society.
Sadly, the writers of the Constitution did not envision a central bank with the power to decide the worth of currency units. Or the right of the government to re-write laws to its sole benefit against that of the citizens. And that includes not just the United States Citizens, but the entire world.
The unindexed capital gain has a quieter twin: the bond coupon. It is taxed in full, including the part that only replaces lost purchasing power. At 5.08% on the 10-year, a 37% bracket keeps 3.2%; if inflation runs 3%, the real return is near zero. Is that 'bracket creep on interest' the bigger hidden tax for savers?
The capital gains example is a clear illustration of the point: a $100 purchase sold at $200 after prices double leaves a taxable gain of $100 even though the real gain is zero. Since gains are not indexed, the tax bite grows with inflation.
The silly Fed creates a dollar and right away the government wants 60% of it up front and another 30% of it in taxes. Poor man Joe gets the remaining dime that isn't worth a plug nickel after inflation.
nice!
Really good. I have tried many times to have this same discussion with my adult children but they are convinced higher prices are caused by greedy CEOs because that is what is being fed to them across most of social media
This is dark and I'm not sure if they're connected, but they might be. As we've entered into this inflationary period, we're seeing states and countries pass laws like the "Medical Assistance in Dying" and the like. Depressed because you can't afford life? Now it's legal to just kill yourself and the state will help.
The point that inflation works as a hidden revenue source for governments is a useful framing. I'd be interested in how you see it playing out when the reserve currency status itself starts to erode, since that unique position is what lets this go on for so long.
Hi. That is what this series of letters will be addressing. This was letter 3 in a series that will take 12 or 13 letters to get through. Losing the reserve currency status means that the inflation the government will undertake will affect our prices in the states a lot more than it has so far. Debasing the currency is always destabilizing. Meaning, things won't be stable. Interesting times ahead.
Thanks, John! Looking forward to the rest of the series, especially how the reserve currency angle plays out.
The $100 stock example is the clearest way I've seen this explained. If prices double over twenty years and you sell at $200, you still owe tax on a gain that buys nothing extra, and you end up with about $88 in real terms. Most people never run that math, which is a big part of why nobody pushes back. It also explains why so many people buy stocks even when they're nervous, since cash in the mattress loses even more.
I have one of those interest paying mattresses you see advertised on late night TV.
"No pitchforks come out".
They seem to be coming out in Europe, for one reason or another..
the zingers keep coming. Thanks John. You are truly spilling the truth forcefully now. With fiat currency, there are so many ways for government to steal; the system incentivizes poor capital allocation and behavior that detracts from productivity growth. Incentivizing usage of debt for everything from government operations (US treasuries) to buying your burrito lunch is counter-productive for a society.
I fully agree!
Good read, John. Linking as usual @https://nothingnewunderthesun2016.com/
Sadly, the writers of the Constitution did not envision a central bank with the power to decide the worth of currency units. Or the right of the government to re-write laws to its sole benefit against that of the citizens. And that includes not just the United States Citizens, but the entire world.