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EJ
10-28-10, 11:37 AM
iTulip endorses the Fair Treatment for Precious Metals Investors Act


http://www.itulip.com/images2/fairtaxad.gif

The Fair Treatment for Precious Metals Investors Act is bill to amend the Internal Revenue Code of 1986 to treat gold, silver, platinum, and palladium, in either coin or bar form, in the same manner as equities and mutual funds for purposes of the maximum capital gains rate for individuals. iTulip endorses the bill and asks readers to contact their elected representatives immediately to solicit their support for the bill.

When the organizers of the Hard Assets Conference invited me to give the keynote speech to a group of several hundred commodity, energy, and precious metals investors and mining company executives in Las Vegas in the summer of 2007, they asked me to make it controversial, and so I did.

The audience alternately groaned and gawked for 30 minutes as I clicked from one slide to the next and told them:


Hard Assets producers and consumers as a group lacks the will to press elected officials to push through legislation to create the types of tax breaks and subsidies that the real estate industry has managed to engineer over decades that culminated in the housing bubble that started in 2002.
As with all subsidies, the market distortion produced in the housing market by these, and neglect of regulations, will end in tears. The housing bubble collapse will crash the financial system and economy.
The crisis that will not be good for the interests of the hard asset group, at least temporarily. Commodity and precious metals prices will briefly crash.
However, after reflation by the Fed with rate cuts and liquidity and Congress via fiscal stimulus, commodity and precious metals will rise to new highs as the dollar weakens and housing prices continue to fall.

This collection of far-fetched claims produced a sea of puzzled faces. The presentation is available here (http://www.itulip.com/forums/showthread.php/1992-Janszen-s-Hard-Assets-Las-Vegas-Conference-2007-Keynote-Presentation).

Cognitive Dissonance

At the time, and up until mid-2008, the meme driving commodity and precious metals prices was rising BRIC demand. Since the early 2000s the optimistic vision of China and India buying all the nickel, copper, oil, and other commodities in sight in perpetuity brought new investors to the hard asset class, and the group before me was a collection of true believers. Investment in hard assets was no longer the domain of doom prophesiers who dominated the precious metals markets in particular for decades. In 2007 a pessimistic view that an unsound structure of international central banking and finance was driving currency values down and their natural hedge, hard assets, up, was unwelcome.

As a further affront to the group, my heretical use of the words “real estate” and “subsidy” in the same sentence elicited blank stares. I knew what they were thinking. I'd seen that stare before. It meant that they felt conflicted as they processed information: “Is he saying that my home price is partly due government tax and loan subsidies?” The news that all homeowners are the beneficiaries of decades of government largess, whether believers in limited government or not, was not greeted enthusiastically in any speech I gave, and I’d estimate that at least 80% of that audience were both home owners and proponents of small government as I am.

Finally, the audience members bridled at my idea that they need to take a page from the real estate lobbying playbook and get to work pushing precious metals tax legislation to, if nothing else, remove the punitive designation of precious metals as “collectibles” to be taxed at the capital gains rate of 28% no matter how long they are held.

“I’m not asking for the kind of give-away that the real estate boys have bought in Washington over the past 60 years. If we had a Goldie Mae that backed loans to buy gold, and a gold loan interest rate deduction, and a provision to allow a married couple to pay zero capital taxes on up to $500,000 in realized gains on gold held for at least two years, well, what do you think might happen? Think the price of gold might go up? Sure, but reaching for that level of preferential tax treatment and credit market engagement to inflate precious metals prices like stocks or houses is unrealistic,” I told them. "We need to aim for the more modest goal of fairness, to get precious metals taxed the same as stocks and bonds." At this point the audience is visibly squirming. No one had ever talked to them this way.

“Is it too much to ask,” I goaded the group, “for our government to levy the same tax on precious metals as on stocks and bonds when that government’s economic policies are guaranteed to depreciate our currency, lower the nominal and real value of stocks and bonds, and force savers out of tax-preferred assets and into punitively taxed precious metals merely to preserve wealth? Taxing stocks and bonds at 15% and precious metals at 28% while pursuing policies that push down the price of the former and raise the price of the latter is just plain sick.”

Results

Two years after my Las Vegas keynote, The Fair Treatment for Precious Metals Investors Act was re-introduced in June 2009 by Idaho Republican Sen. Michael Crapo and cosponsored and two Nevada representatives, one Republican, John Ensign, and the other Democrat, Harry Reid, plus Idaho Republican James Risch.

The bill reverses Internal Revenue Code changes made in 1986 to treat precious metals as “collectibles” to be taxed at the maximum capital gains rate of 35% rather than as rarities to be taxed as other assets are. 1986 was, not coincidentally, the year that the Tax Reform Act was passed that increased incentives favoring investment in owner-occupied housing relative to rental housing by increasing the Home Mortgage Interest Deduction. You could say that higher taxes on precious metals were paid for with lower taxes on residential real estate.

Second Try

This is Reid’s and Ensign’s second attempt to see that precious metals receive fair treatment in the tax code. The bill failed after the first attempt in 2001, the year iTulip readers purchased gold.

This time, let’s not miss our the opportunity to help Reid, Crapo, Ensign, and Risch get this bill passed. With precious metals prices now five times the price they were at when this bill was first introduced, the stakes are high for precious metals owners.

For every $10,000 worth of gold and silver you purchased split 50/50 between the two metals and sold in 2010, the difference in taxes between a 15% tax rate and a 28% tax rate is $394 if you bought in 2008, $1,030 if you bought in 2006, $3,308 if bought in 2003, and $4,322 if you bought in 2001*.


http://www.itulip.com/images2/fairtaxactsavings.gif


Is that worth fighting for?

As precious metals investors, it's our turn to act. Send the following email to the men and women in congress who represent you.

You can make a difference. Do it today.
Dear (Congressman's name),

I am a voter residing in (your state and city/town name) where I work (state your profession and background).

I am writing to request that you support the bipartisan Fair Treatment for Precious Metals Investors Act that amends the Internal Revenue Code of 1986 to treat gold, silver, platinum, and palladium, in either coin or bar form, in the same manner as equities and mutual funds for purposes of the maximum capital gains rate for individuals.

There is no justification for the unequal tax treatment of precious metals and good reason to level the playing field.

In the present economic environment American investors need to be able to purchase precious metals without being subject to punitive taxes. Precious metals have for more than a decade effectively hedged investors' losses in equities and mutual funds caused by steady currency depreciation. The unequal and unfair tax treatment of this defensive asset class, while asset classes such as housing continue to receive special tax incentives and outright government subsidies, contributes to the growing sense of the American electorate that tax policy is set by special interests and not by elected representatives in the interests of the American people.

This bi-partisan bill is a litmus test of independence from special interests, especially financial sector and real estate interests. I intend to vote this November for senators and representatives who support it. Please vote "yes" for the Fair Treatment for Precious Metals Investors Act (S. 1367) and restore fairness to investment assets taxation.

Signed,

(Your name)
(Your email address)
(Your mailing address)
Contact your Senator (http://www.senate.gov/general/contact_information/senators_cfm.cfm)

Contact your Representative (https://writerep.house.gov/writerep/welcome.shtml)

Read about this legislation and its progress (http://www.govtrack.us/congress/bill.xpd?bill=s111-1367)

* Assumes the Bush take cuts remain in place, else long-term capital gains taxes rise to 20% from 15% and the benefit of this legislation is diminished.

jk
10-28-10, 12:11 PM
correct "putative" to "punitive."

iirc, there was a thread in which someone quoted volcker as saying "gold is the enemy." so it's one thing for folks from mining states to support it, it's another to get the votes from those whose states and districts contain banks.

Chris Coles
10-28-10, 12:23 PM
Can someone tell me the position that might apply if the ownership is by a corporation owned by a foreigner?

seanm123
10-28-10, 02:30 PM
My Congressman will be at a small local gathering this evening, he is up for re-election next week. I plan on attending and
delivering the message to him personally if I am given a chance to speak to him directly.

A quick search shows that when previously introduced this bill languished in the Senate and House Committees on Finance.
The persons you really should try and speak directly to are the Finance Chairs. House Finance Chairman Barney Frank who is up for re-election and is bound to be campaigning around his district up till Tuesday. I don't know where he will be but it may be possible to attend
one of his events in and around Boston over the next few days leading up to the election.

Senate Finance Chairman Max Baucus is not up re-election, so write him a letter or pay a visit to Helena Montana when he is off. You might
find him in some watering hole, but for the most part he spends most of his time in and around Washington DC.

A little personal one on one lobbying can go along way, if you can get face time with your Congressman or Senator.

metalman
10-28-10, 03:52 PM
My Congressman will be at a small local gathering this evening, he is up for re-election next week. I plan on attending and
delivering the message to him personally if I am given a chance to speak to him directly.

A quick search shows that when previously introduced this bill languished in the Senate and House Committees on Finance.
The persons you really should try and speak directly to are the Finance Chairs. House Finance Chairman Barney Frank who is up for re-election and is bound to be campaigning around his district up till Tuesday. I don't know where he will be but it may be possible to attend
one of his events in and around Boston over the next few days leading up to the election.

Senate Finance Chairman Max Baucus is not up re-election, so write him a letter or pay a visit to Helena Montana when he is off. You might
find him in some watering hole, but for the most part he spends most of his time in and around Washington DC.

A little personal one on one lobbying can go along way, if you can get face time with your Congressman or Senator.

can anyone here explain to me why 9347 gold bug sites didn't notice & don't promote this legislation? it's languished in the laps of our congresscritters for over 1 yr & not a peep from the usual suspects.

too busy chasing gold & silver manipulators. ;_NT

what about losing $6600 bucks out of every 10K to anti-gold & silver taxes invested in 2001 vs same gains on stocks & mutual funds?! talk about manipulation. ;_O

how come there's no gold anti-tax action committee? where's mish? jesse? sinclair? on this? :o

FRED
10-28-10, 04:31 PM
So far the legislation is being tracked by:

http://coinlegislation.com/fair-treatment-for-precious-metals-investors-act/
http://www.coinnews.net/coin-legislation/111-s1367-fair-treatment-for-precious-metals-investors-act/
http://www.numismaticnews.net/article/Fair_tax_treatment_sought_for_gold_investors/
http://goldandsilverblog.com/precious-metals-investment-tax-rates/

metalman
10-28-10, 06:42 PM
So far the legislation is being tracked by:

http://coinlegislation.com/fair-treatment-for-precious-metals-investors-act/
http://www.coinnews.net/coin-legislation/111-s1367-fair-treatment-for-precious-metals-investors-act/
http://www.numismaticnews.net/article/Fair_tax_treatment_sought_for_gold_investors/
http://goldandsilverblog.com/precious-metals-investment-tax-rates/

see jesse is running a link to this story...

Fair Treatment For Metals Investors Act- iTulip (http://www.itulip.com/forums/showthread.php/17358-iTulip-endorses-the-Fair-Treatment-for-Precious-Metals-Investors-Act?p=179045#post179045)

kudos to jesse! a <strike>66%</strike> 43% tax by the irs on my principle investment in gold rams me infinitely harder than intraday manipulations in gold/silver that net out to nuthin.

Chris Coles
10-28-10, 06:51 PM
In the meantime, surely there is no reason why anyone cannot exchange their Gold as a bulk commodity for Gold coins and then, instead of selling them, simply remove them from storage and use them as currency? What would the tax implications be if, instead of selling the Gold for profit, producing a capital gain, you use them to purchase whatever you need at the time?

rjwjr
10-28-10, 11:09 PM
wow. this thread is dead. guess no one but me & sean cares if pm cap gains taxes get cut in half. wtf?

ok, i get it.

off we go to zerohedge to whine & wring our hands. ;_FP

The problem may be that I'm not seeing it on the iTulip main page. I found it only because Jesse linked to it. Is it posted improperly somehow or is it me?

And what's with the ZeroHedge hate speak? ZH is also an awesome source of infomation.

rogermexico
10-29-10, 12:28 AM
The max long term rate on collectibles, which includes art, jewelry, gold silver and numismatic and bullion coins, is currently 28%, not 35%.

I believe the collectibles rate will stay at 28% even when (if) the Bush tax rates expire, and max ordinary income rate goes from 35% to 39.5%. The ordinary income rate applies to all short term capital gains. When Bush rates expire, LT cap gains rate for non-collectibles like shares will go from 15% back up to the clinton rate of 20%. I think the Obama proposal is the same in this regard.

So if the bill passes, LT gold sales will be taxed at 20% instead of 28%, so the savings are not as dramatic as in the original post. Nevertheless, I'll definitely be writing my congressmen about this, as I am all for lower taxes.

* You can get the LT rate treatment right now if you hold GTU or CEF - worth remembering these are the soundest paper PMs...

Sharky
10-29-10, 03:04 AM
wow. this thread is dead. guess no one but me & sean cares if pm cap gains taxes get cut in half. wtf?

Most people I know who own PMs have no plans to sell any time soon, if ever -- and those who do typically sell for cash, and pay no tax on the gain (if any). I know more than one person who has told me that there is "no way in hell" they will tell the gov that they used to own PMs, as they felt that would make them a mark for possible future confiscation efforts (those who used to own them are more likely to own them again in the future).

I don't agree with either view, but this line of thinking may well be a part of why more people aren't excited about a possible improvement in the tax law.

xPat
10-29-10, 07:05 AM
First, I applaud iTulip for supporting this legislation and promoting awareness. Clearly the thing to do, and probably the best avenue given what's politically possible.

But I can't help but observe that the title of the legislation is absurd. Surely it would be better named the Slightly less unfair treatment of Precious Metals Investors Act.

I mean really, stop and think about it. When you buy PM's you are foregoing ANY income whatsoever. And when you measure things in purchasing power, aside from trend effects, the buyer of PMs is writing off any potential for gains in purchasing power. Over the long haul, PMs are a store of value and nothing else. Yes, I do expect appreciation in real terms in coming years, but that's only because the world is going through a fiat crisis. In other times (like the '80s), holders of gold experienced losses in terms of purchasing power. Over the long haul, it all works out to an asset which, by its very definition, never produces gains in real terms. When it produces gains in nominal terms, it's only because of the reckless actions of the very same governments that seek to tax those gains!

Can you imagine if holders of cash in non-interest bearing accounts were charged a tax on their cash that experienced zero change in balance, under the rationale that because of deflation, the cash was somehow now worth more? Of course not! But when you stop and think about it, that would actually make sense. Someone who held cash through deflation ends up with more purchasing power, and one could frame an argument for why they should be taxed on that gain in real terms.

But when you buy PMs, you are basically making a bet that the government will breach its duty under the law to preserve the purchasing power of the dollar. When your gold is suddenly worth twice as many dollars, you probably didn't "make anything" in the sense of additional purchasing power. All you did was to preserve your previous purchasing power against devaluation as a result of the government breaking its own laws. And you should be taxed for that???

I don't have any fantasy about exempting PMs from capital gains tax entirely ever being politically viable. But I do challenge anyone here to make a persuasive argument for why capital gains on PMs should be taxed at all! All you are doing when you buy PMs is to exchange your USDs for real money, and you have to accept the bad news that instead of being paid interest on your balance, you'll have to pay storage fees instead. The value of your real money (PMs) never goes up or down - it only maintains its value as reckless government policy devalues the fiat currency of the land.

This brings to mind a really important discussion topic I haven't seen covered here on iTulip. Consider EJ's predictions of 20 - 40% annual inflation, and thus enormous devaluation of the USD in coming years, resulting in a price of $2500 - $5000 per oz for gold. In the ignorant reaches of the gold bug universe, people who hear such predictions believe they are going to make a killing. Here at iTulip where investors are more informed, they understand that they're not going to make a 5x profit in terms of purchasing power. Rather, they're going to keep their purchasing power pretty much as it was, as the USD loses 80% of its purchasing power. But guess what? You still get taxed on that 500% "gain", even when there really was no gain. And after paying the tax, the real return on (unleveraged) buying of gold is probably actually negative. If you look forward to the challenges the nation will face and factor in a doubling of all capital gains tax rates (gotta "tax the rich", don'cha know), you're looking at a significantly negative after-tax real return.

Yes, I am well aware of the fact that gold investors who get in early will benefit from the mania effect that is sure to eventually take hold, and that those who also time their exit correctly will see a genuine gain in terms of purchasing power from their bullion investment. But for every investor who has that experience, another will get in too late and have the opposite experience of missing the big momentum move and seeing a negative real return in terms of purchasing power. Averaged over the long term for all investors, gold never produces a real return. All it does is store value at zero real return in exchange for insulation from the effect of depreciating fiat currency. As soon as you tax the gains in nominal terms, you're effectively taxing the average investor for a gain he never really realized.

xPat

thriftyandboringinohio
10-29-10, 09:54 AM
I did my part and contacted my congress critters (I wrote my own letter, no offense to the gifted author above)

A question about this tax: How do we establish the basis for calculating the gain?
My physical is all coins, bought with cash, with no records in place of the purchase price.
Who gets to say what I paid for it when I sell?

rogermexico
10-29-10, 10:00 AM
I did my part and contacted my congress critters (I wrote my own letter, no offense to the gifted author above)

A question about this tax: How do we establish the basis for calculating the gain?
My physical is all coins, bought with cash, with no records in place of the purchase price.
Who gets to say what I paid for it when I sell?

The basis is whatever you paid for the coins. For now, it works on the honor system. The IRS trusts you to report your basis accurately, just as you have to report your basis on stock and other asset sales on schedule D when you file your 1040. The IRS has no record of stock basis either, but that will change starting in 2011 or 2012, IIRC. At that point, your broker will start reporting to the IRS the basis on securities you have sold.....

Whether the infamous "1099 for every transaction" law sticks (part of the health care abomination), and what effect that will have remains to be seen.

thriftyandboringinohio
10-29-10, 10:41 AM
The basis is whatever you paid for the coins. For now, it works on the honor system. The IRS trusts you to report your basis accurately, just as you have to report your basis on stock and other asset sales on schedule D when you file your 1040. The IRS has no record of stock basis either, but that will change starting in 2011 or 2012, IIRC. At that point, your broker will start reporting to the IRS the basis on securities you have sold.....

Whether the infamous "1099 for every transaction" law sticks (part of the health care abomination), and what effect that will have remains to be seen.

Thanks, that's what I'd hoped the answer was.
A form 1099 won't establish a purchase price for any physical we hold today.

charliebrown
10-29-10, 04:13 PM
Does it make sense to do a round trip sell / buy in order to get a paper trail to establish a cost basis?
I have bought a lot of u.s. silver coins for cash at flea markets etc. If my word does not count as cost basis, what will the IRS accept? Face value of the coin by assuming I have had them in a mason jar since the 50s.

thriftyandboringinohio
10-29-10, 04:21 PM
...Face value of the coin by assuming I have had them in a mason jar since the 50s.

Hmm. I think you want the purchase price to be high, so the gain is small.

I personally prefer the honor system for declaring the purchase price of my gold.

rogermexico
10-29-10, 04:22 PM
Does it make sense to do a round trip sell / buy in order to get a paper trail to establish a cost basis?
I have bought a lot of u.s. silver coins for cash at flea markets etc. If my word does not count as cost basis, what will the IRS accept? Face value of the coin by assuming I have had them in a mason jar since the 50s.

No that would be a wash sale and would not re-set your basis. The IRS depends on your word - although keep in mind the burden is always on YOU to prove what your basis is if you are audited.

globaleconomicollaps
10-29-10, 05:14 PM
can anyone here explain to me why 9347 gold bug sites didn't notice & don't promote this legislation? it's languished in the laps of our congresscritters for over 1 yr & not a peep from the usual suspects.

too busy chasing gold & silver manipulators. ;_NT

what about losing $6600 bucks out of every 10K to anti-gold & silver taxes invested in 2001 vs same gains on stocks & mutual funds?! talk about manipulation. ;_O

how come there's no gold anti-tax action committee? where's mish? jesse? sinclair? on this? :o

I want to address this. I have been trying to buy a good chunk of gold here in France for a couple of weeks. I am running into lots of trouble with storage companies, gold dealers and banks. I read gold bug web sites in vain for suggestions on exactly how to buy, transport, store and sell gold. There are no in depth discussions of these things extant. My conclusion is that all of these men and women ( are any of them women?) are lying. They don't have any significant amounts of gold. The dirty secret is that all these gun toting, bearded uni-bomber types are telling us to do something that they themselves would not consider doing. It makes me wonder if I am doing the right thing.

Incidentally the tax on gold held for very long term ( greater than 12 years ) is essentially zero in France.

http://www.loretlargent.info/guides/la-fiscalite-des-pieces-dor/

http://translate.google.com/translate?u=http%3A%2F%2Fwww.loretlargent.info%2Fg uides%2Fla-fiscalite-des-pieces-dor%2F&sl=fr&tl=en&hl=&ie=UTF-8

ThePythonicCow
10-29-10, 07:55 PM
There are no in depth discussions of these things extant.One of the problems you might be running into is that those who hold physical gold don't want to describe in too much detail how they do so (unless perhaps the gold is in some highly secure and heavily guarded vault -- in which case go for it -- good luck.)

Especially those who are in the public eye as long standing gold bugs need to be coy about giving out details of how much gold they hold or by what specific means they hold it.

Sharky
10-29-10, 10:34 PM
I have been trying to buy a good chunk of gold here in France for a couple of weeks. I am running into lots of trouble with storage companies, gold dealers and banks. I read gold bug web sites in vain for suggestions on exactly how to buy, transport, store and sell gold. There are no in depth discussions of these things extant.

The banking/purchase side can be a pain; the approach varies considerably from one dealer to another. There is often a level of trust that's required on both sides. As such, if you're anticipating a large transaction, you may find it easier if you first develop that trust over time, through several smaller transactions.

For transport/delivery, the usual approach is to either buy a little at a time, shipped using standard carriers such as FedEx or UPS -- or, for larger purchases, to contract with an armored courier service such as Brinks. The service will pick up the PMs from the source, and bring them to a location that you specify. The larger services can also handle international shipment. Most of those carriers have at least two people who are with the package at all times. Any large dealer should be able to recommend a reliable courier service.

Another approach is to use a vaulted storage service with allocated purchases, such as BullionVault. BV will also let you pick up metal from them (they have a vault in Switzerland), although it's financially usually not a good idea, because once Good Delivery bars leave their control, they stop being Good Delivery bars, and therefore lose some of their value.


Incidentally the tax on gold held for very long term ( greater than 12 years ) is essentially zero in France.

There are no capital gains taxes in New Zealand, including for PMs.

den111
10-29-10, 10:55 PM
Looked through and Bookmarked the PaNu website. Looks good. Been working towards the Paleo diet since seeing on LewRockwell.com.

FRED
10-30-10, 05:40 PM
I want to address this. I have been trying to buy a good chunk of gold here in France for a couple of weeks. I am running into lots of trouble with storage companies, gold dealers and banks. I read gold bug web sites in vain for suggestions on exactly how to buy, transport, store and sell gold. There are no in depth discussions of these things extant. My conclusion is that all of these men and women ( are any of them women?) are lying. They don't have any significant amounts of gold. The dirty secret is that all these gun toting, bearded uni-bomber types are telling us to do something that they themselves would not consider doing. It makes me wonder if I am doing the right thing.

Incidentally the tax on gold held for very long term ( greater than 12 years ) is essentially zero in France.

http://www.loretlargent.info/guides/la-fiscalite-des-pieces-dor/

http://translate.google.com/translate?u=http%3A%2F%2Fwww.loretlargent.info%2Fg uides%2Fla-fiscalite-des-pieces-dor%2F&sl=fr&tl=en&hl=&ie=UTF-8

We forwarded this appeal to Mish, Jesse, DollarCollapse, and all of the major sites that cover precious metals. Of them only Jesse and DollarCollapse linked to it. The explanation that the proprietors of the the sites that are not supporting the legislation simply don't own enough gold for the law to matter is entirely plausible.

brent217
10-31-10, 12:31 AM
Hmm. I am not sure whether I support this or not. In principle, I agree with Dr. Hudson, and think that labor taxes should be decreased, and rentier taxes (such as capital gains) increased; this needs to be done to reverse the long running destruction of the middle and lower classes in order to increase the relative wealth of the financial elites. I have not seen anyone on itulip disagree with this theory.

So, that said, are we merely trying to convince ourselves that there will be a complete failure of fiat currency, and a return to a PM standard, and this new tax measure is part of the path to that end? Or are we all being greedy, and desperately trying to hold on the remaining wealth we have before it is confiscated by the government through tax?

Disclaimer: I own gold.

rogermexico
10-31-10, 03:45 AM
Hmm. I am not sure whether I support this or not. In principle, I agree with Dr. Hudson, and think that labor taxes should be decreased, and rentier taxes (such as capital gains) increased; this needs to be done to reverse the long running destruction of the middle and lower classes in order to increase the relative wealth of the financial elites.

Capital gains as an IRS tax category is only loosely related to what is actually a gain from capital. In Hudson's scheme, he defines rentier** as a pejorative term that refers to those who earn rents from property that is not per se productive - a particular form of non-labor income. The increase in value of real property (land and buildings) that is due to real estate values going up would be rentier income to Hudson - he considers it a "rent" that accrues only due to excess value not be appropriated by the state in the form of property taxes. (as if the money belonged to the state in the first place - he actually thinks this...)

Now even if you agree with Hudson - and many of us here do not - it in no way follows that all things the IRS calls capital gains are ill-gotten rents.

The lion's share of all capital gains (even, unrecognized by Hudson - real estate gains) is simply the increased value of things like prooerty, shares and precious metals occurring DUE TO RELENTLESS DEBASEMENT OF THE CURRENCY. In other words, the gains are not even real when actual inflation is accounted for - and far from being some kind of ill-gotten gain, if you pay any taxes at all on them, you are actually falling behind. The same with interest bearing investements - you earn 3%, inflation goes up 3% and you pay a third of the 3% as taxes, so you are actually losing money - the same is true for stocks and real estate.

It is well to remember that inflation engineered by the government is really a tax- the nominal growth in GDP, the taxation of phantom capital gains on various assets - the purpose of this is to allow your income and savings to be stolen - it is split between the bankers that have a monopoly on credit creation and the government that they own - they are in it together.

Stealing the wealth of the wealthy*** in general, many of whom, like EJ, or dare I say, me, earned what we have without being part of the FIRE economy (no one can avoid it completely, it is the sea we swim in) is simply more theft and is not the solution to the destruction of the middle class. The solution is to reign in all the tax-eaters -those who get more from the government than they give, whether they are on welfare or whether they work at Goldman Sachs.



I have not seen anyone on itulip disagree with this theory.

Mark me down as "disagreeing with this theory". Hudson's description of FIRE is fairly accurate, however, his general theoretical framework and his statist policy prescriptions are bogus and totalitarian, respectively. Hudson and Hayek cannot both be right. I choose Hayek. At least some itulipians agree. You needn't be a Marxist* to appreciate the concept of FIRE.


So, that said, are we merely trying to convince ourselves that there will be a complete failure of fiat currency, and a return to a PM standard, and this new tax measure is part of the path to that end?

We own gold to practice financial self-defense against the financial elite that are destroying productive economy. This tax measure is the next best thing to zero taxes on capital gains, which is the only fair rate given what I have explained above. In a monetary regime of fixed money supply and limited banke credit creation, capital gains would be on average small and unnecessary -

If dollars held their value over time (actually, if they increased in value due to increasing productivity) then there would be no need to own gold and in fact "investing" would be restored to its proper meaning of assuming risks for the promise of EXCESS returns, instead of financial jiu jistsu to keep the state from robbing you...

It so happens we live in a time when gold is useful to protect our wealth, through absolutely no fault of our own..


Or are we all being greedy, and desperately trying to hold on the remaining wealth we have before it is confiscated by the government through tax?

If you think being entitled to what you have earned and saved and not wanting it to be stolen is greedy, then yes.

I for one am "greedy" by holding gold. My gold is greedy in the same way keeping an HK USP 40 around for folks who might want to cart off my 58" panasonic plasma TV is "greedy". Some people are not greedy in that way either.

*Marx was correct in many ways as well Hudson - mainly in their critiques of financial versus industrial capitalism

** Far from referring just to rich fat-cats - rentier just means you earn income from rent. 10 years ago, an old lady with a few hundred thousand dollars could live on interest from bank CDs. That made her a "rentier".

***
Here defined just as "one who has accumulated some wealth"

Chris Coles
10-31-10, 04:50 AM
The solution is to reign in all the tax-eaters -those who get more from the government than they give, whether they are on welfare or whether they work at Goldman Sachs.


I am in general agreement with everything you say except this single sentence.

The overall problem IMHO is caused by the FIRE economic model creating conditions whereby it is a better career choice to join the tax-eaters, rather than try and become a part of what one might describe as the free enterprise, private, industrial economy.

Those of us with direct experience will attest that the variables involved with creating a new job creating business, outside of a tax-eating economic model are far and away more daunting than modern government realise. They live in a cushioned world where any problem can be instantly overcome by passing a law against it. Whereas, in the alternative world of free enterprise job creation; no one has all the answers and everyone has to work within a framework that has to involve a little give and take and a lot of risk. They make a mistake and they get promotion; we make a mistake and we are bankrupt.

The answer lies in making the rewards fit the risk. But that is exactly where the FIRE economic model has failed. Over a long period, many decades, the FIRE economy has been instrumental in making the tax-eating economy much more attractive to the average Joe. In which case, the answer is to make the rewards for success in setting out to create new employment; much greater than at present. And that leads me to my favourite soapbox.... free enterprise.

The FIRE economic model is entirely centred upon the idea that you cannot gain access to investment of capital, particularly equity capital; without giving up your ownership of the business, (you wish to found), to the FIRE economy. It is that rule that underpins the FIRE economy and Mergers & Acquisition, M&A. It was the need for more and ever more funding to fuel M&A that drove the leverage of the money supply to provide the funds they needed to both lend more and more to the tax-eating economy and at the same moment to fund the M&A. Huge sums were raised, beyond the limits of the bond markets, if they stayed at the 1970 levels, by leveraging the money created by selling phony mortgages.

The answer is very simple indeed and I am convinced that it is in almost everyone's interest to follow this line of thought. And when I say almost everyone, (I particularly include what one might describe as the shadow banking industry now deeply embedded in the international bond markets). We must ASAP, make the creation of new employment via private business creation in the industrial economy.... much more attractive to the founder of those new job creating businesses.

The only way out of this mess is to make any form of tax-eating economy much much less attractive to follow as any form of career choice. We must create a new free enterprise economy based upon risk and reward being properly matched.

rogermexico
10-31-10, 12:46 PM
I am in general agreement with everything you say except this single sentence.

The overall problem IMHO is caused by the FIRE economic model creating conditions whereby it is a better career choice to join the tax-eaters, rather than try and become a part of what one might describe as the free enterprise, private, industrial economy.

What you have said just here is in no disagreement at all with what I said - the welfare state (for both rich and poor) and the centrally planned economy with essentially unlimited reserve banking (fraud) and unrestrained credit based money creation must be changed.

I favor minarchist government that serves to secure the borders and protect the commons (limited pollution control - co2 is not a pollutant) and has no imperial mandate, a welfare state severely stripped down - to the prevention of starvation and disaster relief - and complete removal of the government from all markets - including the market for money. The incentives and ability for the "barbell" of tax eaters to vote for those who will steal from others to subsidize them - whether rich or poor - must somehow be removed. Fundamental reform - probably elimination of the fed with RADICAL tax reform and balanced budget requirements on a paygo basis -are required

The choice of money supply should be set the by the market with no government regulation except prohibtion of fraud - NO fractional reserve lending with mismatched duration would be allowed - no setting of interest rates by the government - no backstopping or bailouts. Over time, gold backed digital money ( or some other stable source of exchange) would become preferred. There would be no capital gains taxes on anything, ever. Without government money pumping and backstopped credit creation, capital gains would be either a speculative accident or the result of your hard work to leverage your investment - why should the government get either?


Those of us with direct experience will attest that the variables involved with creating a new job creating business, outside of a tax-eating economic model are far and away more daunting than modern government realise. They live in a cushioned world where any problem can be instantly overcome by passing a law against it. Whereas, in the alternative world of free enterprise job creation; no one has all the answers and everyone has to work within a framework that has to involve a little give and take and a lot of risk. They make a mistake and they get promotion; we make a mistake and we are bankrupt.

I have direct experience as a self -employed capitalist since the age of 13 - in a variety of businesses. I just recently closed a $2M plus (annual revenues) business that was put to death by the depression created by our government and the governments response to same.


The answer lies in making the rewards fit the risk. But that is exactly where the FIRE economic model has failed. Over a long period, many decades, the FIRE economy has been instrumental in making the tax-eating economy much more attractive to the average Joe. In which case, the answer is to make the rewards for success in setting out to create new employment; much greater than at present. And that leads me to my favourite soapbox.... free enterprise.

Can't disagree with that as a general statement.


The FIRE economic model is entirely centred upon the idea that you cannot gain access to investment of capital, particularly equity capital; without giving up your ownership of the business, (you wish to found), to the FIRE economy. It is that rule that underpins the FIRE economy and Mergers & Acquisition, M&A. It was the need for more and ever more funding to fuel M&A that drove the leverage of the money supply to provide the funds they needed to both lend more and more to the tax-eating economy and at the same moment to fund the M&A. Huge sums were raised, beyond the limits of the bond markets, if they stayed at the 1970 levels, by leveraging the money created by selling phony mortgages.

I have read this thesis of yours before, and I must respectfully disagree. Yo are proposing that financing be provided wihtou giving up eqiuity? I think they call that the bond market and your neighborhood bank.

I think you have the cart way before the horse here. The federal reserve easing and progressive removal of reserve requirements are the CAUSE not the effect of the mortgage crisis.

If interest rates were market-based with a constrained money supply and reserve requirements - no subprime market would ever have been possible. Can you imaging trying to qualify the poor to borrow money at say, 15% rather than 5% on their houses? That is what subprime rates would have been absent greenspan. Human greed is always waiting in the wings to exploit market inefficiencies - the mortgage fiasco was just a big arb opportunity created by the goverment's policies of low rates and backstopping of banks.

The government should be 100% neutral to whether you finance with debt or equity, and you should be allowed the freedom to mortgage what you own and bear the risk 100% on your own accordingly. If real interest rates are set by the market, and fraud is punishable as theft, there is no need to favor debt over equity by policy - in fact they already do quite heavily via the tax code. In the absence of fiat money creation and artificially low interest rates, there would be no hypertrophied FIRE economy. I agree with EJ that the capital and insurance markets are legitimate, just that they should be about a quarter of their current size, and not sucking the life out of the productive economy.


The answer is very simple indeed and I am convinced that it is in almost everyone's interest to follow this line of thought. And when I say almost everyone, (I particularly include what one might describe as the shadow banking industry now deeply embedded in the international bond markets). We must ASAP, make the creation of new employment via private business creation in the industrial economy.... much more attractive to the founder of those new job creating businesses.

The only way out of this mess is to make any form of tax-eating economy much much less attractive to follow as any form of career choice. We must create a new free enterprise economy based upon risk and reward being properly matched.

To make job creation attractive requires sound money (implies sound fiscal policy), a rock solid stable and extremely minimal regulatory environment, and at least predictable if not de minimus, tax rates. We have none of these now. That is all we need. No government "help" other than getting the hell out of the way and enforcing laws prohibiting fraud and theft is required.

Chris Coles
10-31-10, 04:49 PM
You need to return to your initial paragraph. You used the words "reign in".

The true function of a marketplace is not constraint upon the existing function, but instead to unconstrain the function. You have listed a whole set of things to be done to the existing FIRE economy. What I am saying is we need to entirely concentrate upon what will improve the under performing private sector.

If we turn to the best performing national economy in Europe, Germany, we see a massive difference in that most of the SME's are family owned businesses. The family owns them, not the financial institutions. In which case, they cannot be bought and sold by the institutions. Again, their drive is towards internal investment back into their own local communities.



The German economy is characterized first and foremost by around 3.6 million small and medium-sized enterprises as well as the self-employed and the independent professions. Some 99.7 percent of all companies are small and medium-sized enterprises. These are firms with annual sales of below EUR 50 million and a payroll of less than 500. Around 70 percent of all those in employment work in this type of company. 48.9 percent of all SMEs operate as service providers, 31.4 percent in manufacturing, and around 19.7 percent in commerce. Most SMEs are managed by the owners themselves, meaning that the majority shareholder and management of the company are frequently one and the same. Companies are often handed down from one generation to the next. Around 95 percent of German companies are family-owned and almost every third company now has a woman at its head. http://www.tatsachen-ueber-deutschland.de/en/economy/content/background/smes-the-backbone-of-the-economy.html?type=1
Yes, it is true to say I do keep on about the matter of ownership. My reasoning is simple; it is the ownership of the business that controls the long term development of the entire sector. If you leave things as they are today, with the ownership not in the hands of the founders, you have the entire sector driven by the outside influences of the institutions that own the companies. That the ONLY way to suppress M&A is to place the ownership of the business into the hands of the founders.

Now turn to the creation of all those new businesses we need to create all those new jobs. Where is the money to found them going to come from? It is simply not there at the grass roots of society anywhere in the Western FIRE economy. PERIOD.

You might not have noticed that in Spain there is 25% unemployment among the under 25's. We simply cannot continue along the road you see ahead. Your own business has closed. So what I am saying is that the only road that works is to place the new jobs under the complete control of the founders and then we need to devise a method that will drive the funding for the creation of millions of new jobs.

If we make those jobs more prosperous than any within the tax eating FIRE economy, then they will drive the new economy forward without any changes to the existing economy. Forget the past and look to the future. A bit like during a war you forget about the failed and broken equipment, bulldoze it off the road and get on with the job of succeeding. Later you go back to clear up the mess. But if all you do is concentrate upon the existing problems, you divert your attention away from the most important aspect, new business and new job creation. THAT is the primary target.

Chris Coles
10-31-10, 04:52 PM
And I must add, my proposals for The Capital Spillway Trust do not in any way involve the use of government, funding or input. The entire exercise must be driven from the private sector.

rogermexico
10-31-10, 07:07 PM
You need to return to your initial paragraph. You used the words "reign in".

Yes, I said reign in. Reigning in to be accomplished by stopping subsidizing, but also a definitely reigning in the ability to create unlimited credit, and the securitization that comes from that that we both decry.


The true function of a marketplace is not constraint upon the existing function, but instead to unconstrain the function. You have listed a whole set of things to be done to the existing FIRE economy. What I am saying is we need to entirely concentrate upon what will improve the under performing private sector.

The marketplace cannot function with constant credit inflation due to the privileging of banking over the real economy. The constraint on proper capital allocation is distortion of the markets by governments and those privileged by government. What you propose is useless with the siren call of fiat money and unconstrained credit unsilenced.


If we turn to the best performing national economy in Europe, Germany, we see a massive difference in that most of the SME's are family owned businesses. The family owns them, not the financial institutions. In which case, they cannot be bought and sold by the institutions. Again, their drive is towards internal investment back into their own local communities.

germany is paradigmatic for you ? are you serious? have you noticed the structural unemployment there?





The German economy is characterized first and foremost by around 3.6 million small and medium-sized enterprises as well as the self-employed and the independent professions. Some 99.7 percent of all companies are small and medium-sized enterprises. These are firms with annual sales of below EUR 50 million and a payroll of less than 500. Around 70 percent of all those in employment work in this type of company. 48.9 percent of all SMEs operate as service providers, 31.4 percent in manufacturing, and around 19.7 percent in commerce. Most SMEs are managed by the owners themselves, meaning that the majority shareholder and management of the company are frequently one and the same. Companies are often handed down from one generation to the next. Around 95 percent of German companies are family-owned and almost every third company now has a woman at its head. http://www.tatsachen-ueber-deutschland.de/en/economy/content/background/smes-the-backbone-of-the-economy.html?type=1
Yes, it is true to say I do keep on about the matter of ownership. My reasoning is simple; it is the ownership of the business that controls the long term development of the entire sector. If you leave things as they are today, with the ownership not in the hands of the founders, you have the entire sector driven by the outside influences of the institutions that own the companies. That the ONLY way to suppress M&A is to place the ownership of the business into the hands of the founders.

Now turn to the creation of all those new businesses we need to create all those new jobs. Where is the money to found them going to come from? It is simply not there at the grass roots of society anywhere in the Western FIRE economy. PERIOD.

Wrong - there is plenty of money to start businesses. I have some of it myself. I'll bet "Jeff likes to rant" and EJ and many others have plenty more of it. The problems are those I have already described. The idea that there is not enough money is a ridiculous myth. There is in fact too much money.


You might not have noticed that in Spain there is 25% unemployment among the under 25's. We simply cannot continue along the road you see ahead. Your own business has closed. So what I am saying is that the only road that works is to place the new jobs under the complete control of the founders and then we need to devise a method that will drive the funding for the creation of millions of new jobs.

The road I see ahead? Huh? The unemployment rate is caused by misallocation of capital into real estate and other unproductive uses due to the factors I have described. When the bubble bursts, those workers trained for what we never needed in the first place are now unemployed. It takes time to find them new jobs in the ossified euro economy with its rules and regulatory burdens. What is the unemployment rate in singapore and hong kong - those jusrisdictions having the least interference with markets?

I don't understand. You claim I am constraining capitalism and job creation by constraining FIRE, yet you are proposing what? That we "place the new jobs under the complete control of the founders and then we need to devise a method that will drive the funding for the creation of millions of new jobs" that is done how? By force? How do you force founders to not partner or sell shares in their businesses? Why on earth will that create jobs, unless you force them to hire people they don't need? What makes you think there are not adequate methods of funding? If the jobs and enterprises are legitimate and likely to be productive, entrepreneurs IN A PREDICTABLE ENVIRONMENT ADEQUATELY FREE OF REGULATORY AND FINANCIAL UNCERTAINTY will fund them. I will fund them. The money is there. It is not a question of enough money. In fact, a surfeit of money in the form of credit money is what has distorted the markets and led to the unemployment that you decry.

What gives you the right to tell me or any entrepreneur whether I sell or close or open a business who I sell it to or how I capitalize it? Are you a central planner?


[SIZE=2]If we make those jobs more prosperous than any within the tax eating FIRE economy, then they will drive the new economy forward without any changes to the existing economy. Forget the past and look to the future. A bit like during a war you forget about the failed and broken equipment, bulldoze it off the road and get on with the job of succeeding. Later you go back to clear up the mess. But if all you do is concentrate upon the existing problems, you divert your attention away from the most important aspect, new business and new job creation. THAT is the primary target.

Excuse me, but I think this is delusion. You are arguing for a subsidy on the productive economy, designed by you, to counter the effect of the ongoing subsidy to FIRE. That is not going to work for two reasons: 1) It is just more central planning and will have unintended consequnces and 2) FIRE is subsidized by the PC economy. Who will we tax to subsidize the PC economy? Who is adding more constraints, me or you?

Ending the subsidy and free reign given to FIRE and not incidentally, to governments that support FIRE, is the only thing I need and the only thing the productive economy needs if it is to be genuinely competitive an productive.

Rather than some unworkable naloxone to counter the opiates of FIRE subsidies, why not stop all pharmacotherapy?

You can't "make" jobs prosperous just by deciding they should be so, any more than you can print your way to wealth for everyone.

rogermexico
10-31-10, 07:16 PM
And I must add, my proposals for The Capital Spillway Trust do not in any way involve the use of government, funding or input. The entire exercise must be driven from the private sector.

That is the part that makes no sense to me. How can a voluntary private sector program possible compete with armed to the teeth money printing, favor granting government-sponsored FIRE ? Compete in any legal and truly effective fashion, I mean. Not some quixotic demonstration project. For real.

flintlock
10-31-10, 10:23 PM
To make job creation attractive requires sound money (implies sound fiscal policy), a rock solid stable and extremely minimal regulatory environment, and at least predictable if not de minimus, tax rates. We have none of these now. That is all we need. No government "help" other than getting the hell out of the way and enforcing laws prohibiting fraud and theft is required.

Exactly. And why so many don't get this is a mystery to me. You don't need a thousand bureaucracies in order to enforce the law. Just the will to do so.

rogermexico
10-31-10, 11:50 PM
"Reigning in the ability to create unlimited credit..."

It seems even Mervyn King, head of the BOE, thinks this might be at the root of the problem as well.

From this link at zero hedge:

As the BBC noted last week:

Mervyn King, the governor of the Bank of England, has tonight made a big intervention into the debate on banking reform. In a speech at Buttonwood, New York, he [listed] much more radical proposals.

1. Forcing the riskiest banks to hold capital "several times the magnitude" of requirements at present.
2. The Volcker rule-style enforced breakup of banks into speculative and non-speculative arms.
3. The "Kotlikoff proposal", which forces banks to match each pool of risks with a requisite amount of capital, preventing losses in one spilling over into another.
4. Stunningly, Mervyn King imagines the "abolition of fractional reserve banking":

"Eliminating fractional reserve banking explicitly recognises that the pretence that risk-free deposits can be supported by risky assets is alchemy. If there is a need for genuinely safe deposits the only way they can be provided, while ensuring costs and benefits are fully aligned, is to insist such deposits do not co-exist with risky assets."

http://www.zerohedge.com/article/bank-england-head-mervyn-king-proposes-eliminating-fractional-reserve-banking

Bernanke's UK counterpart entertains the ideas of Von Mises and Rothbard?

There may be a shred of hope after all.

Chris Coles
11-01-10, 03:37 AM
That is the part that makes no sense to me. How can a voluntary private sector program possible compete with armed to the teeth money printing, favor granting government-sponsored FIRE ? Compete in any legal and truly effective fashion, I mean. Not some quixotic demonstration project. For real.

You forget your own history. What I am proposing was implemented by the United States at the end of WW2, it was called the Marshall Plan.

Belgian economic historian Herman Van der Wee concludes the Marshall Plan was a "great success":
<DL><DD>"It gave a new impetus to reconstruction in Western Europe and made a decisive contribution to the renewal of the transport system, the modernization of industrial and agricultural equipment, the resumption of normal production, the raising of productivity, and the facilitating of intra-European trade."<SUP id=cite_ref-7 class=reference>[8] (http://en.wikipedia.org/wiki/Marshall_Plan#cite_note-7)</SUP></DD></DL>http://en.wikipedia.org/wiki/Marshall_Plan

What all of you forget is the FIRE economy is driven by trading in companies. Those of us determined not to be traded as though slaves to be bought and sold at the local market cannot get access to capital. The very thing you all claim to rail against, the FIRE economy, is exactly what you are all carried away in doing every day; trading stock.

You gave Germany the economy it enjoys where everyone that could create a business was given the capital to create one.

Since the 1970's there are millions of us that have consistently refused to be treated as slaves. PERIOD. Millions of us. But you have closed your eyes to the reality and constantly invoked the claim that there is plenty of capital available while millions of your citizens live desperate lives below the waterline. The reason being they do not have access to capital. They refused to accept the poor product on offer; slavery!

Buying and selling companies is the root cause of ALL the FIRE economy problems.

What I am proposing is simply an exercise to remove a large quantity of almost worthless paper assets from the existing FIRE economy, (they will evaporate anyway due to their poor quality), and place them, as equity capital and working capital, back into productive use to create new jobs. Yes, under a system you find very difficult to understand - Free Enterprise, where the manager of the business owns the business. Where their company cannot be sold out from under them as soon as it becomes profitable, where multi-national companies cannot buy them to cover up their own mistakes; where the owner takes full responsibility for their local community to employ their people, not some cheap labour in another nation.

So what is YOUR difficulty with that idea?

You claim to live in a free nation yet remain wedded to the idea that no one may own their own destiny.

The utter stupidity that we cannot be both free and successful.

You need to take a walk through some of the most disadvantaged cities in your nation and look at what your FIRE economic model has brought your fellow citizens.

Wake up and smell the coffee; your product stinks and is almost unsellable. Your economic model has collapsed and it is someone else's problem, - nothing to do with me Gov, it fell of the back of someone else's lorry.

Bah! Humbug!

DSpencer
11-01-10, 11:19 AM
What I am proposing is simply an exercise to remove a large quantity of almost worthless paper assets from the existing FIRE economy, (they will evaporate anyway due to their poor quality), and place them, as equity capital and working capital, back into productive use to create new jobs. Yes, under a system you find very difficult to understand - Free Enterprise


Chris,

While the first part of this paragraph is vague, it strongly implies some kind of statist, centrally-planned, anti-free enterprise government action that takes someone's assets and gives them to somebody else. If I'm wrong, please clarify. If not, how can you possibly follow that sentence with one about how others don't understand free enterprise?

This sounds like a George "abandon free market principles to save the free market" Bush plan: centrally plan the economy to make free enterprise work.

You're arguing with rogermexico as if he made any kind of anti-free enterprise comment. I don't want to speak for others, but I believe he's laying out a plan that would accomplish the same goals that you desire. Here's my version that's probably very close to his:

1. For a variety of reasons the government has structured the laws so that investment capital flows into the FIRE economy and away from the productive economy and in particular away from small businesses.
2. The government has also structured the laws so that large, politically connected corporations have a competitive advantage over small, honest businesses. This further enhances the effect of #1.
3. The result is that, compared to a more free economy, more capital is invested in the FIRE economy compared to the rest of the economy.

The problem is NOT:

1. Lack of investment capital
2. Lack of proper investment funds, trusts etc.
3. Fundamental lack of investor desire to invest in small productive businesses

The solution therefore is not to forcefully direct funds into one area or another of the economy.

The solution is to actually have a free market/free enterprise by removing the government interventions that led to the FIRE bubble. To truly understand free enterprise means that you understand that it will automatically develop a near optimal solution to the allocation of capital.

As someone with even a modest amount of capital to invest, it's absolutely infuriating to live through this time period. The government tries like hell to force you into investing in it's partner, big business. If you manage to get lucky with their investments, they tax your money again. If you stomp your feet and insist on trying to just sit this time out with gold/silver then they tax you even higher.

Trust me - people have money and desperately want to invest it in real productive businesses. It's just extremely challenging in a world where government decides who wins and who loses. Who's going to invest in a U.S. small business knowing that all it takes is for one stroke of a government pen to close it down? Interstate commerce clause modern interpretation = government controls all commerce.

DSpencer
11-01-10, 11:34 AM
In the meantime, surely there is no reason why anyone cannot exchange their Gold as a bulk commodity for Gold coins and then, instead of selling them, simply remove them from storage and use them as currency? What would the tax implications be if, instead of selling the Gold for profit, producing a capital gain, you use them to purchase whatever you need at the time?

This is an interesting thought. In the US, you could (foolishly) use american eagles to buy things at face value. Could someone sell me a used car for 500 dollars if I paid in $50 one ounce gold eagles? Would I report a capital loss? Would the gold eagles cease to be an investment? What would I pay sales tax on?

I guess the bottom line is it's just another honor system and if it was ever reviewed the IRS would say it's tax evasion and you'd lose. This is just another bizarre scenario created by legal tender laws that are only enforced in the government's favor.

ThePythonicCow
11-01-10, 04:59 PM
all it takes is for one stroke of a government pen to close it down? Interstate commerce clause modern interpretation = government controls all commerce.
Careful there, DSpencer.

By writing an interesting, coherent, multi-paragraph blog posting, you have delayed my trip to the local mall a couple of minutes, thus delaying my next purchase. This affected inter-state commerce.

Is that a SWAT team outside your window?

Chris Coles
11-01-10, 05:23 PM
Chris,

While the first part of this paragraph is vague, it strongly implies some kind of statist, centrally-planned, anti-free enterprise government action that takes someone's assets and gives them to somebody else. If I'm wrong, please clarify. If not, how can you possibly follow that sentence with one about how others don't understand free enterprise?

First of all an apology to Rogermexico, it is true to admit I got a little hot under the collar this morning. I apologise. But that in turn gave me a better insight to my own thinking. (Nothing like rolling straight out of bed and blowing off a little steam to get a better handle on a debate). To answer your immediate question above; this is not any form of statist, anti free enterprise centrally-planned government mechanism. Instead, I believe that I am debating how to access a market for investment that has been known about for a long time, but no one seems to have been able to create a worthwhile mechanism to access it. Free Enterprise, where the manager of the business owns the business. My hesitant first steps, (and the odd stumble), are a debate about how to make this new market work for the long term benefit of everyone. Please bear with me while I explain.

There are two separate banking systems today, one is the visible banking and investment system, closely linked to government; the other curiously titled: Shadow Banking. I believe that the shadow banking system holds a potential answer to our problems. As I see it, shadow banking entails all the off (conventional banking system) balance sheet assets in the form of a bewildering variety of bonds and securities such as CDO’s etc. etc.; much of which is what we on the outside have described as vapourware. By the same token, I also suspect that they would agree with that analysis...... but it sits there on their balance sheets and is accounted for. But now look at this from another viewpoint; the shadow banking industry must be as deeply affected as we are with the ongoing instability of the visible financial system. That the truth is they too want the nation to succeed and they too wish for more prosperity right across the nation - for that prosperity underpins their own potential for success.
 
What I am suggesting is that they should also recognise the need to re-introduce new prosperity back into the nation, but dislike, (as we all do here on iTulip), any idea of the government becoming involved. So what I have proposed is the creation of a massive fund of what I describe as Vanishing Bonds. I propose that the shadow banking system take their, (shall we say, less than perfect paper assets); and convert them into a new form of bond that is specifically designed to transfer, over the long term, prosperity back into the grass roots of the nation, any nation.

I have already proposed for example here in the UK we create a £450 billion Vanishing Bond Fund with the aiming point of financing the creation of 6 million private sector jobs on free enterprise terms. By the same token, if the US needs 30 million new jobs, then the US fund needs to be in the region of $3 Trillion.

My proposal identifies the existence of a new market for investment and I believe that I have devised a completely new set of rules to address that market. That by taking the value of rubbish assets and converting them to vanishing bonds, we can use these new bonds as value within the outer, conventional banking system, but now as new equity capital and working capital investment into new job creation under free enterprise terms.

So this is not any form of statist, centrally planned mechanism. It is instead, a completely new form of financial institution. I call it The Capital Spillway Trust. Local job creation for the people, managed by the people.

The underlying principle is to change the mindset of local community investment from one where one seeks to find a business prospect that may be turned over and sold on, traded, ASAP for M&A; to one where the recipient is left in total control of their own business and the fund has every intention of remaining at arms length to permit them every chance to reach stability. And to do that both sides have to accept new rules.

The investor has to become a part of a local community of savers where everyone takes risk and reward equally to spread the risk; with the long term aim of increasing the local community prosperity; while, at the same time, accepting that the recipient of the investment is left free. To achieve that, the investor must change their source of income from one stemming from a trading function to one of a long term dividend function. Their investment income stems from dividends, not trading.

By the same token, the new business founder has to accept severe constraints upon their reward; both short term and long, to ensure the long term investors gain an acceptable income for their input; while also taking much greater responsibility for everyone in their local communities. They are, after all, the source of the future prosperity for everyone, both their investors as well as their employees.

When you come down to it, today, everyone sees investment as something…. What did you call it? "action that takes someone's assets and gives them to somebody else" But surely that is EXACTLY how classic Capitalism should function? You give equity capital and receive dividend income. Classic equity capital investment is surely about retaining prosperity within a local community; not about selling that prosperity to another nation?

Please think about that?

The Capital Spillway Trust response to the Green Paper; Financing a Private Sector Recovery was placed up on iTulip for ongoing debate here: http://www.itulip.com/forums/showthread.php/16929-The-Capital-Spillway-Trust-response-to-the-Green-Paper-Financing-a-private-sector-recovery

Some very salient points

The new business will only require the founders pay the initial costs of forming the company and producing a viable business plan. This will be a once in a lifetime opportunity.

You will hang, right out in full view; the potential for ANYONE with get up and go, to create a profitable, free enterprise based, private sector, job creating business for themselves.

Not a single penny of their existing savings risked by anyone.

Not a single penny invested without a new job being created.

Not a single penny spent by any government employee; all the money goes directly into new, free enterprise based, private sector job creation, right at the grass roots of the nation.

The necessary legal and accounting framework is already in place in each local community.

The clear potential for a massive reduction in welfare costs allied to a corresponding increase in tax income. Perhaps for the first time in generations, the government’s books will balance.

Chris Coles
11-01-10, 05:25 PM
This is an interesting thought. In the US, you could (foolishly) use american eagles to buy things at face value. Could someone sell me a used car for 500 dollars if I paid in $50 one ounce gold eagles? Would I report a capital loss? Would the gold eagles cease to be an investment? What would I pay sales tax on?

I guess the bottom line is it's just another honor system and if it was ever reviewed the IRS would say it's tax evasion and you'd lose. This is just another bizarre scenario created by legal tender laws that are only enforced in the government's favor.

To clarify, I meant to say use the Gold coins at their full value, not their face value.

DSpencer
11-01-10, 05:32 PM
Careful there, DSpencer.

By writing an interesting, coherent, multi-paragraph blog posting, you have delayed my trip to the local mall a couple of minutes, thus delaying my next purchase. This affected inter-state commerce.

Is that a SWAT team outside your window?

Lucky for me, my office doesn't have a window!

Just to be sure I don't offend the interstate commerce gods I'll go home and burn my garden and board up my fireplace so that I don't interfere with the agriculture and gas heating industries.

Chris Coles
11-01-10, 05:40 PM
Now I get it, all this humour is because of the election tomorrow. No! :)

DSpencer
11-01-10, 06:26 PM
This debate is pretty off topic so I'll try to swing it back around...

From this thread:

And I must add, my proposals for The Capital Spillway Trust do not in any way involve the use of government, funding or input. The entire exercise must be driven from the private sector.

From your other thread you mentioned:


I propose the Bank of England create a completely new capital bond; a Vanishing Bond.
The Bank of England should immediately create and make available, as a national fund, £450B of new Vanishing Bonds at zero. 0%I don't want to be rude, but at this point I have to believe this whole idea is a test designed to see how much people will debate a silly idea full of grandiose goals and complete nonsense as content.

How is the Bank of England, the CENTRAL BANK, implementing a PLAN to do X, Y and Z in order to fix A, B and C not central planning?

The absurdity of "vanishing bonds" being given to anyone who can scribble out a business plan without risking any of their own money is beyond my comprehension.

You seem like an honest, well-meaning person and I've tried to understand this idea as you've obviously put a lot of thought into it. But all I can conclude is that the end result is a mixture of your personal struggles to get capital investment, a desire to have a brilliant plan that fixes all problems immediately and a scheme so elaborate you've convinced yourself it would work if only someone (in government) would listen. Sorry if that's offensive, but I take offense to this type of plan being labeled as "free enterprise".

If you want free enterprise, the only proper proposal is to eliminate the current barriers to it, i.e. the laws, regulations and excessive taxation that inhibit the free market. In particular laws that make taxes inconsistent and unfair such as the ones that this legislation seeks to (partially) reverse. These laws punish the savers that are the ones behind capital investment.

So in summary....I also endorse the fair treatment for precious metals investors act despite it not going nearly far enough. Gold is money and I don't think it should be taxed at all....aaaand we're back;_TU

Finster
11-01-10, 08:19 PM
Considering that gold and silver were supposed to be money themselves, they shouldn't be taxed at all. Did they really go up in value or did your dollars go down?

At least putting them on the same footing as stocks would be a step in the right direction. Aside from being more fair, it would simplify taxes as well. The IRS considers ETFs like IAU and SLV to be "collectibles" like the metals themselves for determining your tax obligation, but because they are really funds, your 1099 comes adorned with numerous small phantom transactions at the end of each month when you neither bought, nor sold, nor received a distribution. What a mess!

Yes, let’s please fix this now!

Chris Coles
11-02-10, 06:17 AM
This debate is pretty off topic so I'll try to swing it back around...

From this thread:


From your other thread you mentioned:
I don't want to be rude, but at this point I have to believe this whole idea is a test designed to see how much people will debate a silly idea full of grandiose goals and complete nonsense as content.

How is the Bank of England, the CENTRAL BANK, implementing a PLAN to do X, Y and Z in order to fix A, B and C not central planning?

The absurdity of "vanishing bonds" being given to anyone who can scribble out a business plan without risking any of their own money is beyond my comprehension.

You seem like an honest, well-meaning person and I've tried to understand this idea as you've obviously put a lot of thought into it. But all I can conclude is that the end result is a mixture of your personal struggles to get capital investment, a desire to have a brilliant plan that fixes all problems immediately and a scheme so elaborate you've convinced yourself it would work if only someone (in government) would listen. Sorry if that's offensive, but I take offense to this type of plan being labeled as "free enterprise".

If you want free enterprise, the only proper proposal is to eliminate the current barriers to it, i.e. the laws, regulations and excessive taxation that inhibit the free market. In particular laws that make taxes inconsistent and unfair such as the ones that this legislation seeks to (partially) reverse. These laws punish the savers that are the ones behind capital investment.

So in summary....I also endorse the fair treatment for precious metals investors act despite it not going nearly far enough. Gold is money and I don't think it should be taxed at all....aaaand we're back;_TU

At first sight I should run and hide; but along the road I set out upon over the last few decades I came across a simple fact that, today, is not in dispute.

There is NO accepted mechanism for the investment of equity capital under free enterprise terms ... anywhere. The Governors office of the bank of England says they "fully understand the need for equity". .... but ..."are unable to help".

If you turn to the present and look in detail at Quantitive Easing, (QE), you will see all central banks passing out vast sums of money, hundreds of billions no less, in various forms not familiar on the high street, to the existing banking industry and an ongoing discussion about how to continue to "prop" up the present financial system. The expectation is, without further QE, the Western economies will fall back into a second phase reversal.

So there is a general recognition that there is a need to find a road out of the mess we are all in; which in turn prompted Mervyn King to state, publicly, the need for a detailed plan. It was in response to that public request that I came up with the idea of first of all asking the Bank of England for the chance to meet with them to discuss how to raise the funds for such a plan, along the lines I outline with my own thinking about The Capital Spillway Trust. My thinking being that, as we do not have an accepted, agreed by everyone, mechanism to invest equity capital into free enterprise, (everyone thinks we have one, but the truth is we do not have one), then perhaps my own input would have some value.

Not unsurprisingly, they would not meet with me; but it is true to state the dialogue was not entirely negative. I repeat, they fully understand the need for equity.

All my thinking centres upon the simple fact that there is no capacity for investment at the grass roots of the Western nations. There is no spare capital in the form of savings, or spare tax income, or in the form of spare capacity to borrow, neither by government or the ordinary citizen. So the challenge is to think of a method that will both serve as a mechanism for QE, but without the money being automatically distributed back into the existing banking system.

To spur a conversation, I decided to provoke new thinking by devising the idea of a "Vanishing Bond" that will serve as QE, but NOT remain in circulation and even more importantly, not be given to the banks, but instead, would be directed into new job creation. The more I thought about the vanishing bond, the more I saw the chance for the shadow banking system to offload all their dross, of which I am certain, they have a lot on their hands.

The whole idea of the Vanishing Bond is to create a mechanism that simply acts as a transfer mechanism, transferring prosperity presently locked into the shadow banking system, back into the general population, over a period of time, as new prosperity.

If you can tell me of another mechanism that will quickly; NOT over many decades, replenish the missing prosperity at the grass roots of society that is needed to allow the normal process of job creation to re-start..... then tell us all about it.

As an inventor, I have become used to being laughed at; very few can handle the idea of a new way of looking at existing processes; even less can actually accept the changes needed. It is thus very interesting indeed to see that Mervyn King seems to be showing the capacity to also drive forward with new thinking of his own as we can see with his recent speech. http://www.itulip.com/forums/showthread.php/17343-Mervyn-King-Banking-From-Bagehot-to-Basel-and-Back-Again?p=179119

All I have done is provoke a debate about a missing element in the funding of new job creation. Yes, anyone can and may criticise what I am trying to do, or the way I suggest implementing my thinking; but at least I am trying to do something to overcome the problem.

There are conversations ongoing, in the background, relating to the value of some telecom patents that were granted to me that may give me the impetus to show the way forward and the value of my thinking by being able to put my money where my mouth is; so perhaps the questions you raise will be answered sometime soon.

But me; I have a very clear conscience. When I left school at 16 yrs, 1960, there were plenty of jobs, today we see reports like this last night on Channel 4 TV. http://www.channel4.com/programmes/dispatches/4od#3136470 Oh! and I challenge you to watch the whole hour without flinching. These kids desperately need jobs now, not government welfare, but local people prepared to work at creating new jobs for the majority. The only thing lacking is the available equity capital; a simple fact the Bank of England agrees with. All I am trying to do is find a workable way forward.

metalman
11-02-10, 08:41 AM
voted the 1000 times option but that's not it, either... poll needs an infinity option.

bought gold & silver w/itulip & are both up > 5x... if that's manipulation i say... keep up the good work, boys! taxes, on the other hand, will take $4,400 out of every $10,000 of invested principle... or 44%. what do i get if I divide 44% loss to taxation by 5x gains from/despite 'manipulation'?

'losses' due to manipulation... it's a nonsense poll question. the folks who complain about market manipulation aren't buy & hold gold & silver investors... they don't have enough $$$ in either metal to care about taxes... they're trying to make $$$ by trading gold & silver & are pissed off because they stumble onto the wrong side of trades vs the big, bad banksters.

Thailandnotes
11-02-10, 08:48 AM
There is already a big black market in gold. I wonder if itulip folks would be willing to talk about what they know. I am quite sure I can sell 30 oz of gold in the states and not report it or get caught.

DSpencer
11-02-10, 02:38 PM
There is already a big black market in gold. I wonder if itulip folks would be willing to talk about what they know. I am quite sure I can sell 30 oz of gold in the states and not report it or get caught.

I agree that it's probably possible at the moment but while 30oz is a lot to some people it won't help people with significant gold holdings. I can't imagine someone selling dozens of kilo bars for cash.

It's also not likely to get any easier. There's already reporting on large (10k + I believe) cash transactions and now the 1099 legislation. So on one hand they make the taxes unfair and then on the other hand they make sure you can't avoid them by requiring lots reporting information.

I just wish I had the dozens of kilo bars to worry about.

I certainly don't expect a lot of people on iTulip to post about how they cheated the IRS...

thriftyandboringinohio
11-02-10, 03:15 PM
Considering that gold and silver were supposed to be money themselves, they shouldn't be taxed at all...

Excellent point. None the less, when I convert my Federal Reserve Notes into high quality scotch or a king-size mattress, I pay a tax on the transaction. No reason I shouldn't pay tax when converting gold into FRNs. The only issue of fairness is the tax rate; we shoudn't pay extra harsh taxes on the gold-to-currency transaction.

Perhaps the transaction should be considered not a transaction at all, but changing the form of money, like exchanging a $20 bill for two $10 bills, or moving money from a checking account to a brokerage account. You make a great point, Finster...:o

rogermexico
11-02-10, 03:55 PM
voted the 1000 times option but that's not it, either... poll needs an infinity option.

bought gold & silver w/itulip & are both up > 5x... if that's manipulation i say... keep up the good work, boys! taxes, on the other hand, will take $4,400 out of every $10,000 of invested principle... or 44%. what do i get if I divide 44% loss to taxation by 5x gains from/despite 'manipulation'?

'losses' due to manipulation... it's a nonsense poll question. the folks who complain about market manipulation aren't buy & hold gold & silver investors... they don't have enough $$$ in either metal to care about taxes... they're trying to make $$$ by trading gold & silver & are pissed off because they stumble onto the wrong side of trades vs the big, bad banksters.

MM, I think this percentage of initial investment terminology is confusing and misleading.

I think I get the "per principal" math - but comparing taxes bases on the initial investment is senseless for making comparisons. Taxes are on the gains, not on the principal, so percentages of the initial investment are not independent of the gains.

For instance, if your tax rate is 100% on the gain, but there is no gain, the percentage of the principal you pay with 100% confiscation is now zero. So how is that helpful? Why not just compare tax rates to avoid confusion?

Max rate is 28% as a collectible or 15% (20% if Clinton rates return) as regular cap gains.

The difference is a 13% reduction (absolute) or 47% (in the rate) , unless Bush II tax rates expire, and then it goes back to 8% and 29%.

DSpencer
11-03-10, 05:18 PM
Perhaps the transaction should be considered not a transaction at all, but changing the form of money, like exchanging a $20 bill for two $10 bills, or moving money from a checking account to a brokerage account. You make a great point, Finster...:o

That is the key part. This would seem to be especially true if you were talking about gold or silver eagles which are in fact legal tender.

In fact, if you were a real crazy person, you might even do something wacky and quote the constitution:

No state shall enter into any treaty, alliance, or confederation; grant letters of marque and reprisal; coin money; emit bills of credit; make anything but gold and silver coin a tender in payment of debts;...

And then if you were that weird you might claim that gold and silver coins are the only truly legal tender. And then you'd wonder how the only constitutional form of money is taxed as a collectible. But that would make you crazy because we all know that judges are infallible and they've said this is A-OK so we shouldn't bother trying to read all those silly words because we'll just get confused.