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Archive for July, 2012

You should.

If you are an investor they are a uniquely tax-sheltered form of investing/speculating.

If you are interested in public policy, they are a uniquely abusive tax shelter for those that undertake short-term speculation.

What is IRS code section 1256? I don’t have chapter and verse in front of me, but it is a provision in the IRS code that allows those that trade in futures contracts, or those that invest in funds that trade in futures contracts, to pay taxes as if the trades were partially long-term, even though most trading is closed out within a day or other short period.

Long-term capital gains are taxed at a maximum tax rate of 15%, and 0% if you are in the 10 or 15% marginal tax bracket. For a married family with two kids, the 25% tax bracket comes into effect at around $70,000 in income.

Section 1256 construes gains as taxed at 60% long-term capital gains (at the reduced capital gains rates above), and 40% at short-term capital gains rates (one’s marginal tax rate).

If you bought stocks, and not future’s contracts, and traded them on the same pattern, all of them would be short-term and taxed at one’s marginal tax rate (up to 35%, compared to a maximum of 15% for long-term capital gains).

Anyone (with $5,000 at risk capital) can open a future’s contract. Further, futures contracts allow for much much more leveraging of one’s initial investments.Most futures brokerages will allow you to invest up to 10 times (or more) the amount that you put at risk initially, so long as you quickly cover short-term deficiencies in your account (margin calls).

One can make a LOT of money in futures (and lose a lot of money), and although strictly speculation, it is taxed mostly as if it were a capital gain at reduced tax rates.

Its grossly inconsistent with logic (to reward speculation rather than encouraging value-adding enterprise). Its grossly unfair. And, it has horrid social consequences, even horrid marketplace consequences.

And, most importantly, it distorts human psychology, replacing the decision trees of a greed addict, instead of the moral decision trees of a mindful and honorable mensch.

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I want to go on record. I don’t like the mandatory nature of the Obama Health Care Act. People have different priorities regarding health care. As feminists have asserted strongly that their/our own bodies are our own business, the same should apply to decisions about every aspect of health decisions. We should not be forced into even the insurance model of health care.

There is an irony (I love ironies) about the more “left wing” proposal of medicare for all. That is that, it, more than the mandatory commercial insurance model, preserves individual health care independence, as well as has elements of cost accountability, that are missing in the universal commercial insurance model.

That is that medicare pays for 80% of most medical care, and the individual is responsible for the other 20%.

That 20% is enough to effect my health care decisions. There are some tests and some procedures that I will not get. There is some accountability.

With only a fixed $20 copay, I won’t forego any procedure. The doctors want to be risk averse with other people’s money, fine.

Medicare for all is better for providing health care, period. Accountability for cost, universal coverage for preventitive and public health related care, very reduced overhead costs (due to not requiring profits, separate administrative offices, marketing, and management). The difference in costs is staggering, close to 18% of all health costs is unnecessary overhead, created by the insurance model.

On the law itself. The republicans are gleeful that the Supreme Court declared the mandate illegal if only considered via the logic of the interstate commerce clause, but not illegal is considered by the logic of the federal taxing authority.

And, by that reasoning, the republicans, including many people that are attorneys and should know much better, declared that the penalty for not getting insurance is a “tax”, and they will go to town on it.

But, the Supreme Court did not declare that the penalty was a tax perse, but that the constitutional validation was in the taxing authority.

“Section 8. Clause 1. The Congress shall have Power to lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States.”

A “duty” is not a “tax”, though it is authorized under the taxing authority clause of the Constitution. A penalty is not a tax.

Mitt Romney calling it a tax. I want more integrity in a president. I also want more integrity in the press, that just went along with it.

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