GURU JOHN BOGLE ON THE MARKETS….
Via Bloomberg TV:
Bogle on the private equity industry:
“I would confuse Steve Schwarzman with an indexer. He may own a diversified list of stocks but it’s not going to look anything like the index. And then of course, you deduct the monumental, outrageous fees, on which they pay very low taxes…Ridiculous.”
“Look, I would think most people in this room would say that there should be no tax rate that is lower than the earned income tax rate that people earn by the sweat of their brow or the burrows of their brain. That should be the regular tax rate. I think that there are a lot of good arguments out there for having a higher tax rate on capital gains, in particular short-term capital gains…What is the explanation for the tax break for gambling?”
“I am arguing for a capital gains rate taxed at ordinary income. I’m also arguing for a premium tax and maybe even a transaction tax that will slow down trading…Why would you give a lower tax rate to other than the people working every day than you to on people who are, to a large extent, gambling on Wall Street?”
On higher taxes for the wealthy
“There’s something that I don’t like about “soak the rich.” I say, equalize the sources of income, but given the income distribution, or maldistribution, in this country, you are doing the same thing. I think it’s a better platform to consider where the income comes from and how it’s earned and we’ll tax everybody at least equality…I would also put in because there are a lot of people, the lower 99%, who own investments in the hope of building a retirement plan. I would say, just for the fun of it, top of head, maybe give them the first $10,000 or $25,000 of capital gains and dividends tax free. Is that soaking the rich or helping the poor to accumulate retirement? They happen to be the opposite sites of the same coin.”
On which presidential candidate has the best tax policy:
“I’d say the Obama plan to the extent that I understand it. Everybody knows deep down that carried interest is a technical fraud…I am a lifelong Republican, but unfortunately to ruin the sentence, I am what I would call an Abraham Lincoln or Teddy Roosevelt Republican, and they are a vanishing breed. But I think that we will eventually have to come back…I don’t see anything from any of the other candidates, when you do the math, whether it’s Herman Cain–that just simply doesn’t work. The Romney plan, I have no idea what the Gingrich plan is, and Santorum, no comment.”
“As a general policy, equalize the taxes, raise the taxes on capital gains. He may not have to raise the taxes on people who earn more than $250,000 because he’s going to pick up so much on the capital gains change. Again, I want to emphasize that this has nothing to do with capital formation…I look at this position as just simply logic, with maybe a touch of concern for our fellow human beings who aren’t doing as well as we are all doing.”
On the hedge fund industry:
“First of all, they come and go at an astonishing rate. I have no reason to believe that the hedge fund averages from Credit Suisse or wherever, are fair representation of what happens…I think what it is is some ghastly combination of greed and hope and a belief that the past is prologue. If we haven’t had enough of that, if we don’t learn enough…even the very good managers over time in the mutual fund industry, Bill Miller is a great example and I have a lot of respect for him, but he had a lot of bad years after a lot of good years. That is always what happens in this business….Bill Miller, from beginning to end, 18 to 20 years, is average. That is not so bad. He almost beat the index.”
On hedge fund managers he admires:
“There are a number of hedge fund managers that I greatly admire. One is Steve Galbraith at Maverick, one is Cliff Asness at AQR…they’ve done well in the past…look at the character of the management and make sure you know what they’re doing. There’s not 1,000 managers that I’m madly in love with, mutual fund or hedge fund.”
On equities:
“In the case for equities, my view is a very simple one. That is, in the long run, the fundamental things apply as time goes by. And that is the case for equities is based on today’s dividend yield, your entry level dividend yield, and the earnings growth that follows that. I call that fundamental investing.”
On ETFs:
“I am skeptical of the way they are being used. ETFs are the greatest marketing innovation thus far in the 21st century. What we should be looking at is are ETFs the greatest investment innovation of the century? Are they the best thing for investors? And the evidence is overpowering that they are not.”
I think what Mr. Bogle is saying about tax policy is easy to achieve. Every person would, for example, pay 10% on all sources of US income combined with a very substantial personal exemption, for example $30,000 for each person and each of his US dependents living in the USA. The same for all companies: a 10% tax on all US revenue combined with a substantial exemption of $30,000 for each US FTE (full time equivalent US employee). This would be for US and foreign/multinational companies. Remove profits taxes, Federal and State sales and wage taxes, and remove taxes on money made outside the USA by US and of course foreign/multinational companies. Uncle Sam would give 1/3 of these taxes back to each of the States divided up by population to make up for lost State wage income and sales taxes.
He might be saying it but there is no way the intrenched interests of lawyers and accountanats would every allow this to happen. While theories on righting inequities are noble they rarely stand in a democracy as old as ours.
As far as the tax policy, the wealthy should have their taxes increased 20% pts above the average citizen over the next 30 years then a gradual adjustment downward to equilibrium. Corporate taxes should be 100% on any earnings from a corporation that derives more than 50% of its earnings from overseas operations within any entity it owns more that 10%. Short term capital gains should be taxed at 75% and long term capital gains (more than ten years to match what formerly was the duration of mortgages before they destroyed the mortgage market).
Eliminate lobbying by any organization. Corporations should be reclassified as non citizens but instead as legal entities with a charter that citizens of the US grant as the privilege, not the right, but the privilege to operate within the protected sovereign borders of the US.
I can not see any way John Bogle’s tax plan could ever pass in Congress. The rules he disdains are required for the ever present greed. Dishonesty is rarely challenged by justice, as we have seen with banks. We have the best Congress money can buy.
neglected to state that long term capital gains as defined should be taxed at 10%.
Quark, (I know that politically this is not possible) If a new tax system had all people and companies paying 10% for taxes on all revenues, not profits (with a substantial personal and US employee deduction), and each company paid 10% taxes on its US only revenues (nothing on profits, nothing on exports), think about how that would encourage US job creation. Sales taxes would need to be eliminated. Note that investors would also pay 10% on capital gains, long and short, gains from inheritances, revenue from the sales of homes and businesses, revenue from dividends, revenue from wages, e.g. revenue from any and all sources is taxed at 10%. The only deduction is US head count $30,000 each. The effect would be that all US revenue would be taxed at 10%, minus 1x $30,000 for each person and another 1x $30,000 for each working person. Just because such a simple and fair tax system is politically impossible, does not mean we need to continue to tweek the current failed system.
I would agree that the tax system is antiquated but like so many other issues in this country there is so much inertia built into the system by entrenched interests that it will take a shock to the system that removes the power players.
The argument against simply changing percentages without directing the tax toward behavior is the other sovereigns will simply lower their taxes as well and you lose relative advantage. That said, other governments could tweak their taxes directly toward changing behavior as well.
i love Bogle and the man is a saint and a legend. i believe that Long Term Capital Gains Rates should be at 15% or lower. i think Mitt Romney is the best man for the job. everything Romney touches turns to gold. i say America could use a touch like that right now.
You own 100% stock in a company in that makes $1,000,000. That business pays 25% taxes and has 750,000 left. Then it distributes all its income as a dividend. you pay 15%, or $112,500. You have $637,500 and payed a 36.25% tax rate on your investment. That is equality. So either you leave that tax rate on dividends and capital gains around 15% or eliminate business taxes.
You do realize that the money wages are paid from were also already taxed at the business level and then will cotninuen to be taxes many times more in terms of sales tax , fees and so on.
The truth is that all the money in the economy is taxed every time it changes hands, not just once. Can youe xplain why at one exchange it should be taxed – 10%, at another 30% and yeat at another 6%?
Obviosly, the higher the tax is, the less there is incentive for money to move from hands to hands. So, the higher the tax, the less liquidity there is in the economy. That is the bottom line.
> cotninuen to be taxes
continue to be taxed
P.S.
IE really needs a spell check ))
Anything Romney touches turns to gold? How about his political campaign? He’s a disaster.
The fact that he is not a good politician is not bad. It means he is more comfortable with doing than talking (or should i just say “lying”?). This is the more productive kind of a person.
However, I am still likely to vote for Obama because it looks like Romney is going to toe the republican line on military spending and cutting military spending is on the top of my priority list.
Re Wells Fargo, If Romney is a Midas, he had better watch what he touches.
I’d say Romney’s record as a liar is pretty well established. Personally, I do not care if Obama or Romney wins as they will both have the same policies although Romney is more likely to go along with the Tea Party crowd. I don’t think the Dems would make that an option though.
1. Whats wrong with ETF’s. They fit some people’s needs and thats fine. Others can find a different investing/trading vehicle.
2. Bill Miller had some good years and some bad ones but it’s not like he ended up on welfare. Lots of “companies” or Entrepreneurial activities have a good run, a bad one blossom or wither and fade…. and are still worse off than Bill Miller. This is capitalism and the hedge fund industry reflects this. You don’t need to beat the market forever, you just need to beat it at the right time and cash in your chips ( Mark Cuban). You can still play but don’t give everything back
Thanks for the link Cullen, I enjoy Bogle’s comments. I do agree with what he says regarding capital gains. People who earn money actually working and producing should be taxed at the same rate on capital gains.
And blow up colocated servers with the market, the HFT is starting to get out of control if it hasn’t already…