Looming Tax Hike Motivates Owners to Sell .

[CJ7]

thats nice Joe, thanks for, uh, whatever the hell it was

oh yeah ... pointless horseshit

[joe bloe]

Originally Posted by CJ7

thats nice Joe, thanks for, uh, whatever the hell it was

oh yeah ... pointless horseshit

I'm sure just about everything seems pointless to you. You're on the left side of the bell curve.

[CJ7]

not everyting, just you and your horseshit.

[Texas Contrarian]

Originally Posted by ExNYer

1) Obama is going to win. In which case, he follows through on increasing capital gains taxes.

2) Romney will win, but he is full of shit on reducing taxes. So, he will raise capital taxes, too.

If they are selling to avoid higher taxes, then there is one thing they don't believe: that Romney will win and keep capital gains taxes where they are.

That's the general consensus of players I've talked to recently in the VC and private equity industries.

Most feel that Obama will probably win, and that Republicans will not be likely to resist his efforts to raise the cap gains tax rate forever. Most likely, it will be increased as part of a larger deal on taxes and the budget.

If Romney wins, the probablity is high that he will be virtually forced to do the same. There's an expectation on the part of some that he'll allow the capital gains tax rate to rise in order to minimize or avoid a top-bracket ordinary income tax rate increase.

This set of expectations has brought out potential buyers interested in sniffing out deals. They feel that potential sellers with even a modicum of interest in cashing out may try to close a transaction before the rate goes up, and may therefore be more motivated than would otherwise be the case. And mutually elevated expectations regarding the other party's level of motivation certainly tends to foment dealmaking activity.

The same thing happened in 1986, when Reagan worked out a tax reform deal that dropped the top rate on ordinary income in return for kicking out almost all large deductions and exclusions, but raised the cap gains rate from 20% to 28%. There was a flurry of sales activity just before the rate went up, resulting in a large spike in revenue collected by the Treasury. Then capital gains tax revenue trended to a lower level for a period of about eleven years, when the rate was dropped back to 20% pursuant to a deal worked out by Bill Clinton and congressional Republicans.

[Guest032516]

Originally Posted by CJ7

now lets mention the fact they sell because higher tax scenario was taken from a viral email and became a right leaning talking point, and leave it at that

What are you talking about? The higher cap gains tax is being widely spoken about, not just in some viral e-mail. The article itself is from the WSJ.

Originally Posted by CJ7

the CG increase would be 10% and 20%

in my case, I ran a company that posted 7 figure quarters every quarter for 12 years ..

if I fell in the 20% bracket on $1 million dollars, I'd pay $200K

remaining profit would be $800 k

12 years@ 200K is 2.4 million
12 years @ 800k is 9.6 million

leaving 8.4 on the table is in no way rational for any business

Again, what are you talking about? Are you talking about corporate income taxes?

The article talks about the cap gains tax that kicks in upon the SALE of the business. Did you sell a business every quarter for 12 years?

According to the article, the cap gains tax is currently 15%. It is going to increase to 23.8%.

Let's say you started a business 15 years ago and it is now worth $20 million. Let's assume you started from near zero value and ALL $20M is a capital gain.

You are considering retiring or doing something else - maybe this year, maybe next year or the year after.

Selling the business now will cost you $20M x 15% = $3 million in CG taxes.

If you wait until next year, then the CG tax will be $20M x 23.8% = $4.76 M.

So waiting until the CG tax goes up costs you $1.76 million in extra taxes. Why wouldn't you pull the trigger now?

[Texas Contrarian]

Originally Posted by ExNYer

Again, what are you talking about? Are you talking about corporate income taxes?

I wondered the same thing, but was afraid to ask!

It just looked like a totally confused post. (Not that that's ever much of a surprise around this place!)

[Guest032516]

Originally Posted by CJ7

A FREE COURSE IN BUSINESS !!!

Originally Posted by CaptainMidnight

I wondered the same thing, but was afraid to ask!

It just looked like a totally confused post. (Not that that's ever much of a surprise around this place!)

Yeah, maybe he shouldn't hand out that free course in business as a prize.

Maybe he should take it himself.

[CJ7]

when Obie was first elected this same scenario came into play

businesses were selling off because of taxes he hasnt raised yet .. several emails were going around at the time making the complaint " I lost my job because Obama will raise taxes" ... it grew from there and became a rightwing talkng pont ..

no, you lost your job because of a recession that started before Obama was elected ...

[joe bloe]

Originally Posted by CJ7

not everyting, just you and your horseshit.

I'm glad to hear you've got no problem with all the other right wingers in the Sandbox. There may be hope for you yet!

[Texas Contrarian]

Originally Posted by CJ7

when Obie was first elected this same scenario came into play

businesses were selling off because of taxes he hasnt raised yet .. several emails were going around at the time making the complaint " I lost my job because Obama will raise taxes" ... it grew from there and became a rightwing talkng pont ..

no, you lost your job because of a recession that started before Obama was elected ...

Non sequitur.

It's not the "same scenario." You're talking about massive layoffs during the severe recession following the financial crisis. Sure, there were a lot of disingenuous claims made by various ideologues and partisans, just like there always are.

But what does that have to do with timing issues or sell/no sell decisions based on consensus expections that capital gains tax rates will rise?

[CJ7]

same scenario inasmuch as Obie rasing taxes, not the EXACT scenario.

[Guest032516]

Originally Posted by CJ7

when Obie was first elected this same scenario came into play

businesses were selling off because of taxes he hasnt raised yet .. several emails were going around at the time making the complaint " I lost my job because Obama will raise taxes" ... it grew from there and became a rightwing talkng pont ..

no, you lost your job because of a recession that started before Obama was elected ...

LOL.

You pretty much COMPLETELY ignored the last couple of posts Capt. Midnight and I made about the nonsense in your last post. You just changed the subject.

I'll take that as a tacit admission your last post was junk.

[CJ7]

a viable business unless so inclined, IMO wont sell simply because of th CG increase

to assume otherwise is HORSESHIT, just like I said

split hairs anyway you want. Ill be back later

[Guest032516]

Originally Posted by CJ7

same scenario inasmuch as Obie rasing taxes, not the EXACT scenario.

No, the article is about business owners who are actually selling or in the process of selling their businesses and why they are doing it - to avoid cap gains taxes.

Frankly, I don't see what the big deal is about from either the left wing or right wing perspective. Businesses make decisions all the time based on tax policy.

If the government needs the revenue and is willing to run the risk that the increased rate will bring in more money than will be lost by any slowdown in business, then so be it.

But that is a different argument entirely than simply saying the article is horseshit, which it clearly isn't.

Personally, I think increases in both the cap gains tax and personal income tax are going to be necessary ALONG WITH some CUTS in entitlement spending.

I'm just afraid will get the tax increases with no long term adjustments to entitlements.

[Guest032516]

Originally Posted by CJ7

a viable business unless so inclined, IMO wont sell simply because of th CG increase

to assume otherwise is HORSESHIT, just like I said

split hairs anyway you want. Ill be back later

The only horseshit around here are the strawmen arguments you keep setting up.

No one said. either here or in the article, that a viable business is going to sell simply because of the CG increase. That is your strawman.

At any given time, there are always a certain number of businesses that are going to be sold - either for retirement reasons or to cash out and use that money for some other investment. That is just normal turnover.

However, tax policy can affect the timing of that decision, either by moving it forward a bit or postponing it a bit. In this case, at least some business owners will move the sale of a business forward in order to avoid the increased tax next year.

From the government's perspective, that will actually cause a bit of a boom in capital gains tax revenues THIS year, because at least some business sales that would have occurred next year or the year after, will occur this year instead.

The downside is that there will be a reduction in the number of businesses sold next year or the year after, resulting in lost CG tax revenues in those years. However, some part of THAT loss will be offset by the increased tax rate on the business sales that DO occur in the future.