Gerstner Says Short-Term Gains Should Be Taxed at 80%
June 26th, 2009The margin is the problem. Take margin out of the picture. End it all. Deleverage the trades. Make it so that you can only trade the amount of equities that you have in cash. Sheesh! What a concept.
Now, I’m not so keen on the 80% tax part because this would eliminate the potential for people to defend themselves against the arbitrary whims of the diabolical confetti paper printers by hedging and diversifying.
How about this? The megatax applies if your gains involved the use of margin, but the regular tax applies if you went in 1:1. Even better, how about individuals get to use margin but professionals and institutions are restricted to cash? Hmm? How does that sound?
I’ll stop before people in lab coats show up to dress me in a straight jacket.
But why not address the root cause of all this nonsense?
Ahh, because we’re stuck in Fiat Currency Hell. As long as we’re stuck in Fiat Currency Hell, all the calls to tax this and regulate that are just more nonsense. THE FEDERAL RESERVE IS PRINTING MONEY OUT OF THIN AIR and Gerstner wants to tax people 80% for trying to defend themselves against the effects of that.
No, Gerstner doesn’t put it that way, but that would be an effect of this.
Restore realty to the money and you go a long way in restoring reality to the market.
Via: Bloomberg:
Louis Gerstner, the former International Business Machines Corp. chief executive officer, said that short-term investment gains should be taxed at 80 percent as a way to counter the culture of greed on Wall Street.
“If you buy something — a stock or a bond — in the morning, and you sell in the afternoon, the tax probably ought to be 80 percent,” said Gerstner, also a former chairman of Carlyle Group, the world’s second-largest private equity firm.
“If you hold it for six months, maybe it ought to be 60 percent,” Gerstner told Bloomberg Television.
Selling an investment after five years should carry a zero rate “to try to get the incentives for investment to go back to being a true investor and not a trader,” he said.
Gerstner acknowledged that such a change would be “controversial” yet argued it is necessary to encourage investors to think about the longer term. The top tax rate on gains from investments sold within one year is now 35 percent.
“We do have a greed or an inefficiency that comes out of excessive focus on the short term,” said Gerstner, who bemoaned an investment climate driven by quarterly earnings and a 24-hour news cycle. He was an executive at American Express Co. and RJR Nabisco Inc. before joining IBM.
Gerstner, 67, also criticized compensation practices, saying “there’s been astoundingly unnecessary, excessive executive compensation in certain instances.”
Government Rules
He said the solution isn’t government rules or caps on pay.
“I despair of a government solution,” Gerstner said. “We’ve had governments attempt to control executive compensation for 40 or 50 years.”
Instead, Gerstner called for more disclosure and oversight of boards of directors by shareholders, “because ultimately the boards need to make these decisions.”
“The system can fix itself without rigid rules,” he said.
Gerstner, who approves of generous compensation for executives who add shareholder value, called for an end to golden parachutes for failed managers. “We have to see an elimination of pay for people who get fired and then wind up with these huge payments,” he said.
Gerstner acknowledged that Wall Street executives he knows wouldn’t like his plan for higher taxes on investment gains.
“They wouldn’t like it at all,” Gerstner said. “Wall Street is driven by transactions. That’s what they live by. They don’t live by long-term investment decisions.”
Research Credit: Lagavulin
