I enjoy your videos and the fun way you present them. I now also have a more clear understanding of the classic example of the wealthy Buffett vs secretary tax rate question. 😊 Thanks!
I love that you are on the chalkboard :). You have a new subscriber. I'm curious why you put down 10% for your Warren Buffet example. I'm looking at Capitol Gains tiers and am seeing Long term CG at 15 -20 %?
What about if you put into a 403b annuity? I am being told that it is tax deferred, so if I put $200 in a month, that $200 is coming out directly from my paycheck pretaxed. Which will help it build compound interest over 30 years. Any information on these points?
I'm not coming at this from some sort of contrarian view, but I think it's missing some important aspects. 1) the "already taxed" view can also be reversed. Instead of taxing capital lower because income is already taxed, we can tax income lower because the resuling capital will be taxed, and either will be taxed for a longer time or go back into the economy through circulation. Not saying we should do this, but saying it's another view. 2) The average Joe invests with money earned from employment. High net worth individuals, at least outside the US, rarely can make more through employment than through stocks. Again, you can flip it and view salary as the proceeds from business. 3) The cost of investing is risk, but the cost of labour is time. There's also risk in employment, getting fired, similar to how there's risk in a company failing and thereby losing value. In fact the risk is paired together and whereas an investor can diversify, you cannot do that with your main job. Where I agree investment risk is very different is that you can lose past gains, whereas this is impossible for income, but see the next point. 4) Low risk assets in many countries are taxed the same way as high risk assets. There's practically no risk with T-Bills and MMFs yet they are often taxed the same way. MMFs practically never lose past gains, I'd consider them less risky than employment where wage theft is common and most people are unable to sue. All this to say, both employment and investing are valuable. They all involve risk, with some assets and forms of employment containing more risk than others, and the types of risk are markedly different. There are different ways you can tax them and I think the main reason we tax them the way we do is because most of our politicians gain most of their money through capital not income. There are many significant practical issues with a wealth tax (how it impacts investor behaviour, impracticality of valuing private companies and certain real estate, tax havens etc), but I'm only addressing the points made in the video
I'm not going to address all of that, but lots of things are wrong. For example, the "cost" of investing is not risk. The "cost" of investing is MONEY. You are choosing to take that money and use it for something that contains risk. In other words, it is a "cost" that "has risks". When you go to your job, there is no risk (sure, you could work for a scumbag who decides not to pay you, but I'd assume we can agree that's the exception and not the rule). It does "cost" you time, but there are no risks with it. This is why the safest way to make money is to "get a job" (it's a even trade off between time and money).
@@claytrader Money is also the reward (or at least value, which can be turned into money by selling). Hence risk (of that money) is the cost of investing. You can lower the risk to virtually nil if you accept a lower expected return. You can increase your expected return by taking on more risk. And naturally, you can take on risk without increasing your expected return. Potàto potáto I guess but this is probably the least contentious part of my comment. I also explicitly mentioned the main risk in investing is losing money, whereas the risk in work is limited exclusively to future earnings. It can have knock-on effects if e.g. you have a home, lose your job and are forced to foreclose at a loss in a downturn like 2008
@@claytrader Realistic? Sure, many people have no choice, either you work or you don't get paid. If it's a high chance then only if the pay is commensurate with that. And I approach investing the same way, weighing the risk against the expected return in the time available to me. If someone is willing to pay me double for my work but I have a 30% chance they'll never pay me (and I have some magical way to estimate that accurately), I'll take them up for the offer
@@claytrader well I know that he pays cap gains but the income tax part you said it’s lower? But like if he owns a business the asset management firm dose he have an income tax or just solely cap gains?
I enjoy your videos and the fun way you present them. I now also have a more clear understanding of the classic example of the wealthy Buffett vs secretary tax rate question. 😊 Thanks!
Happy to help!
"He's not selling crack to kids at the playground". 🤣😂 Always excellent and informative trading vids, Sir. Thank you.
Glad you enjoyed it :-)
GREAT Explanation - More of these to clear stuff up - Love how you explore multiple examples
Glad it was helpful!
I love that you are on the chalkboard :). You have a new subscriber. I'm curious why you put down 10% for your Warren Buffet example. I'm looking at Capitol Gains tiers and am seeing Long term CG at 15 -20 %?
I just picked a number as a placeholder. These numbers can change based on new changes in tax codes, so don't get hung up on the numbers themselves.
Love your videos! I’ve learned so much from you!
I'm so glad!
Very good, clear , concise explanation thank you!
Glad it was helpful!
Extremely helpful! Thank you!
You're welcome!
Great explanation Clay!
Thank you!
What about if you put into a 403b annuity? I am being told that it is tax deferred, so if I put $200 in a month, that $200 is coming out directly from my paycheck pretaxed. Which will help it build compound interest over 30 years. Any information on these points?
I can't say I know much about annuities, but I can look into it for a video idea. Thanks
In the example of warren buffet, where does he get the money to invest? Wouldn't he also need income hence it being taxed once also.
I'm not sure what you're asking.
If it's about risk, then why is capital gains from trading, taxed at the same rate as income? You can argue, trading is more risky than investing.
Valid point and goes to show the government could certainly stand to clean up the policy.
I'm not coming at this from some sort of contrarian view, but I think it's missing some important aspects.
1) the "already taxed" view can also be reversed. Instead of taxing capital lower because income is already taxed, we can tax income lower because the resuling capital will be taxed, and either will be taxed for a longer time or go back into the economy through circulation. Not saying we should do this, but saying it's another view.
2) The average Joe invests with money earned from employment. High net worth individuals, at least outside the US, rarely can make more through employment than through stocks. Again, you can flip it and view salary as the proceeds from business.
3) The cost of investing is risk, but the cost of labour is time. There's also risk in employment, getting fired, similar to how there's risk in a company failing and thereby losing value. In fact the risk is paired together and whereas an investor can diversify, you cannot do that with your main job. Where I agree investment risk is very different is that you can lose past gains, whereas this is impossible for income, but see the next point.
4) Low risk assets in many countries are taxed the same way as high risk assets. There's practically no risk with T-Bills and MMFs yet they are often taxed the same way. MMFs practically never lose past gains, I'd consider them less risky than employment where wage theft is common and most people are unable to sue.
All this to say, both employment and investing are valuable. They all involve risk, with some assets and forms of employment containing more risk than others, and the types of risk are markedly different. There are different ways you can tax them and I think the main reason we tax them the way we do is because most of our politicians gain most of their money through capital not income.
There are many significant practical issues with a wealth tax (how it impacts investor behaviour, impracticality of valuing private companies and certain real estate, tax havens etc), but I'm only addressing the points made in the video
I'm not going to address all of that, but lots of things are wrong. For example, the "cost" of investing is not risk. The "cost" of investing is MONEY. You are choosing to take that money and use it for something that contains risk. In other words, it is a "cost" that "has risks". When you go to your job, there is no risk (sure, you could work for a scumbag who decides not to pay you, but I'd assume we can agree that's the exception and not the rule). It does "cost" you time, but there are no risks with it. This is why the safest way to make money is to "get a job" (it's a even trade off between time and money).
@@claytrader Money is also the reward (or at least value, which can be turned into money by selling). Hence risk (of that money) is the cost of investing. You can lower the risk to virtually nil if you accept a lower expected return. You can increase your expected return by taking on more risk. And naturally, you can take on risk without increasing your expected return. Potàto potáto I guess but this is probably the least contentious part of my comment. I also explicitly mentioned the main risk in investing is losing money, whereas the risk in work is limited exclusively to future earnings. It can have knock-on effects if e.g. you have a home, lose your job and are forced to foreclose at a loss in a downturn like 2008
@@Valyssi if you thought there was a very realistic chance of you going to work and not getting paid, would you do it?
@@claytrader Realistic? Sure, many people have no choice, either you work or you don't get paid. If it's a high chance then only if the pay is commensurate with that. And I approach investing the same way, weighing the risk against the expected return in the time available to me. If someone is willing to pay me double for my work but I have a 30% chance they'll never pay me (and I have some magical way to estimate that accurately), I'll take them up for the offer
@@Valyssi you are proving my point without apparently realizing it. Anyways, have a good weekend. Thanks for the thoughts.
Higher income tax, lower job participation rate. Higher capital gains tax, lower investment rate.
Kind of.
That’s long term rates
Correct, the core reasoning is the same.
So dose Warren buffet pay an income tax tho?
Nope, I don't believe so.
@@claytrader how is that?
@@jomedial i explain in the video.
@@claytrader well I know that he pays cap gains but the income tax part you said it’s lower? But like if he owns a business the asset management firm dose he have an income tax or just solely cap gains?
@@jomedial if he isn't paid a salary, then he doesn't pay income tax.