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http://johncbogle.com/wordpress/2006/04/12/mutual-funds-and-taxes/ Thoughts from the Founder of the Vanguard Group of Investment Companies Thu, 10 Jun 2010 12:19:24 +0000 http://wordpress.org/?v=2.9.2 hourly 1 http://johncbogle.com/wordpress/2006/04/12/mutual-funds-and-taxes/comment-page-1/#comment-312 salevin Wed, 21 May 2008 19:39:38 +0000 http://johncbogle.com/wordpress/2006/04/12/mutual-funds-and-taxes/#comment-312 Amen. We recently discussed The Battle for the Soul of Capitalism in the TigerTomes book group (http://www.tigertomes.com) and capital gains taxation came up in the following: ------------------------------------------------------------------ Back in the late '90s, there was a modification to the tax code to reward long term buy-and-hold investors with a 2% reduction in the top capital gains tax rate for new investments held for five years or more. The Bush tax cuts wiped that incentive out, rewarding instead 100% portfolio turnover per year. (Those changes also shafted folks like me who took advantage of the option to irrevocably redate some existing holdings as of 1/2/2001 by paying capital gains at the 20% rate at that time in order to start a 5 year clock running on those same investments.) While tax rates should not be the single factor driving investment decisions, they do have a powerful sway over both institutional and individual investors. Should the Bush tax cuts be allowed to sunset and replaced by a stronger version of the 5 year break, say a 5% reduction to 15% after five years, I would confidently predict that average portfolio turnover would drop to a modest fraction of its current stratospheric level. Let's go even further, say 10% for 10 year holdings and 5% for 20 year holdings. According to current administration vogue, such cuts would increase government revenues, and accelerate them in the out years when Social Security will most need them, while at the same time rewarding long term savings and stable investment. -------------------------------------------------------------------- Amen. We recently discussed The Battle for the Soul of Capitalism in the TigerTomes book group (http://www.tigertomes.com) and capital gains taxation came up in the following:
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Back in the late ’90s, there was a modification to the tax code to reward long term buy-and-hold investors with a 2% reduction in the top capital gains tax rate for new investments held for five years or more. The Bush tax cuts wiped that incentive out, rewarding instead 100% portfolio turnover per year. (Those changes also shafted folks like me who took advantage of the option to irrevocably redate some existing holdings as of 1/2/2001 by paying capital gains at the 20% rate at that time in order to start a 5 year clock running on those same investments.) While tax rates should not be the single factor driving investment decisions, they do have a powerful sway over both institutional and individual investors. Should the Bush tax cuts be allowed to sunset and replaced by a stronger version of the 5 year break, say a 5% reduction to 15% after five years, I would confidently predict that average portfolio turnover would drop to a modest fraction of its current stratospheric level. Let’s go even further, say 10% for 10 year holdings and 5% for 20 year holdings. According to current administration vogue, such cuts would increase government revenues, and accelerate them in the out years when Social Security will most need them, while at the same time rewarding long term savings and stable investment.
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